Although a flood of issuers came to the primary bond markets last week, banks are predicting a global slowdown in issuance due to tightening interest rates.
As if corporates had taken heed of CF’s debt feature in the September issue of the magazine, which urges them to issue dollar debt while US demand is strong, dollar-denominated bonds dominated issuance last week. BellSouth offered a two-tranche bond totalling $3 billion intended to finance the acquisition of AT&T Wireless, Russian company Norilsk Nickel said it was planning to issue its first dollar bond and DaimlerChrysler doubled the size of its three-year floating rate note to $1.5 billion after the initial offering was five times oversubscribed.
Other dollar issuers included Petrobras, which offered $500 million of 10-year bonds, HBOS Treasury Services, which launched a $750 million bond, and Wells Fargo, which offered two bonds of $1.75 billion and $850 billion. In Europe General Motors received ?9 billion in orders for its bond offering and both US conglomerate Cargill and airport operator BAA announced the launch of inaugural euro-denominated bonds.
But a report from ABN Amro published today claims that bond yields have peaked. It predicts that a global economic slowdown will not be strong enough to prevent the US Federal Reserve from tightening interest rates, with consecutive rate rises of 25 basis points expected in September and November and the base rate reaching a peak of 3.25% by summer 2005. This will lead to a fall in bond yields and a reduction in issuance.
Robert Lind, ABN Amro’s chief economist in Europe, said: ?Recent economic evidence suggests that bond yields have already posted their cycle peak. However, the rally since mid-June has coincided with a severe trend of weaker than expected data. While this trend is unlikely to continue, as shown by last week’s US Payrolls data, we find it difficult to see 10-year yields in the US and EU passing the highs of June 2004.?
The report predicts that the US, the UK and China will all tighten monetary policy over the next six months to a year, while Japan and Europe will suffer from weak export
growth and a decrease in domestic demand. This will lead to a slowdown in worldwide economic growth. The price of oil is expected to stabilise at around 36 dollars a barrel and therefore not contribute to the slowdown.
