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New corporate bond rush
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April 24, 1997: 2:29 p.m. ET
Companies look to bring debt to market before Federal Reserve raises rates
From Correspondent Ceci Rodgers
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NEW YORK (CNNfn) - The bond market's recent and unexpected rally has sent yields to the lowest level in a month -- creating a golden opportunity for corporations to bring their debt to the market.
Corporate treasurers have taken notice.
Last month, they put new debt offerings on the back burner when the Federal Reserve Board raised interest rates. And in recent days, as interest rates have dipped, companies have offered a slew of new debt.
The sense of urgency has been caused by next Friday's unemployment report, which the Federal Reserve could use as a signal to raise interest rates. Companies are looking to cut their financing costs, said bond fund manager Mike Kennedy of Stein Roe & Farnham.
"The expectation right now is that the Fed will increase rates on May 20, so a lot of issuers want to get in and issue debt before the [hike] and, therefore, lock in lower rates," Kennedy explained.
This week and next, some $10 billion in investment grade bonds are expected to hit the market, double the usual issuance.
Among the biggest issues are $2 billion in notes and bonds from CSX Corp., $3 billion from Norfolk Southern Corp., and $1 billion from Comcast Corp.
Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, warned that corporations may later regret their rush to lock in rates. (100K WAV) or (100K AIFF)
Market response may show that waiting for a lower rate is a good strategy. Investor demand for corporate bonds at current rates remains brisk, helped along by better-than-expected first-quarter profits.
It will hard for corporate treasurers, who set their watches by the Fed's interest rate moves, to break with tradition. Small investors might do well to take notice because corporations have had a pretty good track record of timing the direction of interest rates.
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