Corporate bonds lose attraction due to nervous US market

New nervousness on the impending healthcare vote scheduled to be held in Washington have dampened any enthusiasm for the corporate bonds. This compelled a number of companies to pay and borrow via debt capital markets. Other companies are now waiting in the sidelines to allow the market pass this phase.

Attracting investors

Issue premiums were issued by Santander and Goldman Sachs to attract investors. This is a must in a subdued market. Goldman raised a total of $2.5 billion. This includes about $1.75 billion notes which will mature within 3.75 years and have a yield about 110 basis points well above the similarly dated Treasuries. These notes can be redeemed after a period of 2.75 years. This can be compared with the outstanding 2020 debt which got traded in March 21 with a 91bp spread.

A number of other companies, like Rockwell Collins decided not to venture into the market. Rockwell Collins held its investor marketing calls and filed its paperwork with the US securities regulators on March 20. Although the company wanted to issue new debt during the third week of March, it did not do so on approximately $4 billion sale of bonds on March 22. This was due to a number of reasons, including the sell off of the market during the beginning of the week. The proceeds of this action will fund the company’s takeover of another company- B/E Aerospace. The latter specializes in manufacturing cabin interiors.

Debt sales

Rockwell Collins delayed the debt sales owed by them. This not-so-good beginning of the week in the corporate debt markets follows the biggest sell off in Standard & Poor 500 on March 22. This is done in the middle of political wrangling over the reform of healthcare strategy in Washington. The healthcare debate is being viewed as a probable impediment to any tax reform which can be expected in the latter part of 2017. It has also been an important ingredient in market rally from the time Donald J. Trump was elected to the US presidency in November.

A total of six investment grade firms sold brand new debt on March 22. The list of such companies include Kimco Realty, Goldman Sachs, Ventas Realty and Santander. Among these companies, Kimco Realty and Ventas Realty are investment trusts specializing in real estate. They own a number of shopping centers and senior housing facilities.

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