Market Features
Bond Markets Face Big Test
08/08/07 - 12:28 PM EDT
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New York City's subways weren't the only places flooded Wednesday. After a long dry spell, the high-grade corporate credit floodgates opened this morning as well. So far there are signs that deals are getting done, though some observers doubt that the credit crisis is over. Wednesday's 10-issue high-grade bond calendar is a test of the market on many levels. First, 10 issues in one day is about as much as the syndicate desks and portfolio managers can handle, says one manager. He says the deals thus far are going relatively well, but placing all the paper will be this afternoon's business. The deals, which include benchmark offerings (meaning $1 billion or greater) from Merrill Lynch (MER - Cramer's Take - Stockpickr), Citigroup (C - Cramer's Take - Stockpickr) and Kraft (KFT - Cramer's Take - Stockpickr), are coming with some concessions on yield. They are being offered by the undewriters anywhere from 5 to 15 basis points above comparable issues in the marketplace. There are also several smaller $250 to $500 million deals in the market from utilities such as Wisconsin Power & Light and Public Service Co. of Colorado, among others. After a period of little liquidity and widening credit spreads, placing 10 deals will be a task in itself. Another issue is how the bonds get priced after the recent near-shutdown of credit markets. "I can't remember the last time there were 10 deals in the market," says Sid Bakst, portfolio manager at Weiss Peck & Greer. Bakst is skeptical that the recent drying up of credit market liquidity -- driven in part by worries about the market for subprime mortgages, as illustrated by this summer's collapse of two Bear Stearns (BSC - Cramer's Take - Stockpickr) hedge funds -- is over. He notes that in the secondary market for existing bonds, liquidity has only partially returned -- even with the large deal calendar back in action. He adds there are still midmonth hedge fund marks coming out Aug. 15. Meanwhile, the large high-yield, or junk, bond calendar is still on hold until after Labor Day. "I don't think this crisis is over," says Bakst. "These hiccups and dislocations take three to four months to work themselves out."
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