Junk bond market 'Go Open' as sales soar, spreads shrink

The junk bond market is reviving, after at least seven companies sales dropped last week, saying investors are gaining confidence that the sovereign debt crisis of Europe will not infect the global economy.

International Lease Finance Corp. and Clearwire Corp. led to speculative-grade companies set to sell $ 2.4 billion of debt. the relative yields have fallen 29 basis points since November of 30-593 basis points, or 5.93 percentage points, the biggest two-day decline since May.

the issuance of junk bonds, which fell in November after the busiest period of two months of history, again amid reports of retail sales rose the highest since March and the number of Americans signing contracts to buy existing homes rose a record 10 percent in October. The European Central Bank extended an emergency loan program, and President Jean-Claude Trichet pledged to fight "acute" financial market strains.

"The risk environment is better, and you have few places to go, so we are seeing people from high performance," said Peter Ehret, head of high yield income and senior fund manager of Invesco Ltd. , which oversees 621 billion U.S. dollars in assets. "This week, things are definitely back open. There is much to do between now and Christmas, so those of us in high performance will have a busy month."

"You can not win anything"

The average yield for the junk debt of 8.04 percent compared with 4.01 percent of investment grade bonds and 1.7 percent for Treasuries, Merrill Lynch Bank of America data show index. The asset class has returned 13.6 percent this year, up from 9.5 percent in companies and 6.9 percent with higher ratings on U.S. government debt.

"There is a lack of alternatives," said Ehret, who lives in Houston. "You can not win anything ever. Just try to run an insurance company or no pension income."

Elsewhere in credit markets, the extra yield investors demand to own global bond company rather than similar-maturity government debt remained unchanged at 176 basis points, after reaching a 12-week 177 the November 30, according to Merrill Lynch Bank of America Global Corporate Market Index general. The average yield of 3.84 percent.

The cost of insuring against loss in European corporate bonds fell for a third day after the European Central Bank implemented emergency measures to halt what it called "serious" strains in financial markets.

Risk junk bonds

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with credit ratings on all high performance decreased 10 basis points to 469, according to JPMorgan Chase & Co. The indicator is below 526 on 30 November, the largest three-day decline since May 12.

The ECB, based in Frankfurt delay withdraw emergency liquidity measures and buy more government bonds yesterday, without actually implementing new tools to combat the crisis.

Swaps credit-default tend to fall as improving investor confidence and rising as it deteriorates. The credit-default swaps pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.

The commercial paper market, where companies often borrow money for 270 days or less, shrank for the fifth consecutive week that the companies took advantage of the cost of long-term debt hovering near historic lows.

The shrinking market

The seasonally adjusted market for short-term notes was reduced to $ 44,000,000,000 $ 1,021,000,000,000 in the week ended Dec. 1. Without seasonal adjustment, commercial paper fell to $ 23,800,000,000 $ 1,024,000,000,000, the biggest drop since March and the lowest since 1998.

Companies have less incentive to issue commercial paper after resort to the bond markets in the longer term, the accumulation of cash, said Peter Crane, president of Crane Data LLC, a research firm in money-laundering Westborough, Massachusetts.

Greg Lippmann, a former trader at Deutsche Bank AG, which became famous bet against the subprime mortgage securities, said that the market for bonds backed by U.S. mortgages reflects the possibility that house prices will fall by 10 percent.

Lippmann, who helped start the LibreMax hedge fund this year Capital LLC, said that while buyers of credit at home are anticipating declining home prices, investors in other markets that are price the potential drop. As a result, mortgage debt that has soared in price this year is even cheaper in relation to high-yield corporate bonds, he said.

"At a price '

"If housing prices drop 10 percent, the mortgage market is going to do well, because that is what has a price," Lippman said hedge funds in New York Link Conference organized by us. "Wider markets are not in housing prices by another 10 percent."

Bond New York, Citigroup Inc. were the most actively traded U.S. corporate securities by dealers, with 166 transactions of $ 1 million or more, according to Trace, the bond trading service of the Financial Industry Regulatory Authority.

The Standard & Poor's / LSTA U.S. leveraged loan 100 Index rose 0.7 cent to 91.77 cents, the second consecutive increase after falling a day for seven days. The index tracking the 100 largest dollar loans first lien leveraged.

In emerging markets, the relative yields fell 7 basis points to 248 basis points, the lowest since Nov. 24, according to JPMorgan Chase & Co. index data.

Junk bonds

Sales of junk bonds, rated below Baa3 by Moody's Investors Service and lower than BBB-by S & P, have reached 3.24 billion U.S. dollars this week, compared with 1.56 billion U.S. dollars in the period ending 26 November, it was the least since the five days ended Sept. 3 .
speculative-grade issuance, which surpassed the annual record in September, has reached 268 billion U.S. dollars this year, according to our data. Borrowers sold 73.1 billion U.S. dollars of debt in September and October, most within two months.

"The risk trade is already showing signs of coming back," said Bonnie Baha, head of global credit group developed DoubleLine Capital LP, which manages $ 6.8 billion in Los Angeles. "If you were to watch another episode of infection in bulk, would that affect lower-quality issues more seriously, and we're not seeing that."

As concerns about the euro-region fiscal crisis declined in Europe, investors turned their attention to U.S. reports. Pending sales of existing homes rose after falling 1.8 percent in September, the National Association of Realtors said yesterday. In general, retail sales in more than 30 channels followed by Retail Metrics, run by Abercrombie & Fitch Co. and JC Penney Co., beat estimates last month. Sales rose 5.3 percent for 14 straight gain, compared with a forecast of 3.5 percent.

Bond sales rise

Overall corporate bond sales this week of $ 19.9 billion, including 16.6 billion U.S. dollars of investment grade issuance, compared with $ 2.9 billion in the previous period, the slowest of the five days from May .

In Europe, sales of investment-grade bonds fell to its lowest level in nearly a decade this week. The issuance fell 80 percent to 1.2 billion euros (1.6 billion), less out of a vacation period from December 17, 2000. Dong Energy AS, the largest power generator Denmark ended its tender offer of hybrid capital bonds and postponed a plan to issue new hybrid securities, citing volatile market conditions.

'Tug-of-War "

"It was a tug of war between news news coming out stronger in the front of the U.S. and weaker on the European front," said Rajeev Sharma, a money manager at First Investors Management in New York who helps oversee $ 1,500,000,000 investment grade credit.

ILFC, s American International Group Inc., the aircraft leasing unit, sold $ 1 billion of 8.25 percent at 10 years in its third bond offering this year.

Clearwire Corp., a provider of wireless high-speed network 54 percent owned by Sprint Nextel Corp., sold $ 675 000 000 of debt after saying last month that did not have sufficient funds to continue operating. S & P rates the CCC company with a negative outlook.

The company plans to sell $ 175 million first priority secured Senior Notes due 2015 and $ 500 million second priority secured notes due 2017, Kirkland, Washington-based Clearwire said yesterday in a statement.

Funding uncertainty

Clearwire was about to sell the debt after revealing in a November 04 presentation that continued losses and the uncertainty of funding "raises substantial doubt about our ability to continue." A defect could cause a contract to provide Sprint pulling the U.S. carrier third-largest mobile phone in default.

"The agreements less qualified to find a little more traction they arrived six months ago," said Andrew Feltus, a fund manager at Pioneer Investment Management Inc. in Boston whose 2.8 billion U.S. dollars Pioneer High Yield Fund has exceeded the 91 percent of their peers in 2010. "It's just a little more life to the role of the CCC type."

high volume performance has also been driven by a shift of power to investors to borrowers, after Performance Food Group Co. and Bain Capital LLC Burlington Coat Factory Warehouse were among at least seven bids canceled last week.

"The buy side has a little advantage now given what has happened in recent weeks in global markets," said Sabur Moini, a money manager that oversees $ 1.7 billion of high yield debt Payden & Rygel in Los Angeles. "People seem more interested in playing the markets now than they did in the past three weeks."

Hindalco Industries Ltd. unit of Novelis Inc., Skillman, ConvaTec Inc. based in New Jersey and at least a dozen other high-performing companies are planning as much as 8.5 billion U.S. dollars of debt sales.

"You buy a risky asset class, you will have corrections," Feltus said, referring to last week's drop in sales of scrap. "The question is' are being driven by what is happening in the market or outside influences?" While external factors, which expects to see the market rebound, we have in the past 48 hours. "