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Citi’s head of NA capital markets expects record May in investment grade

Volumes in US dollar-denominated investment-grade debt could reach $100 billion in May, putting 2011 on track to beat 2010 and 2009, says Peter Aherne, head of North American capital markets and syndicate at Citi. Both January and March this year saw issuance of more than $100 billion, according to Dealogic. As of May 3, $347 billion had been issued year-to-date versus $787 billion in all of 2010.

Some of the rush can be explained by issuers trying to get ahead of interest rate rises expected later the year. But Aherne says issuers are also taking advantage of attractive credit spreads and investor appetite.

“Credit spreads are closing in on historically tight levels, particularly for corporates,” he says. Yields are now around the lowest in five months. On Tuesday PepsiCo sold $1.75 billion of two-year and five-year notes. The $1 billion five-year paper came with a 2.5% coupon at 57 basis points over Treasuries.

“Corporate credit fundamentals are outstanding, so we continue see significant new money and asset allocation to investment grade credit,” says Aherne.

Investment-grade debt is also very attractive right now in comparison to other asset classes. Bill Gross, founder of Pimco, stated boldly this week that Treasuries were overvalued and would remain so for “years, if not decades”.

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