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MarketScreener Homepage  >  Equities  >  Swiss Exchange  >  Credit Suisse Group AG    CSGN   CH0012138530

CREDIT SUISSE GROUP AG

(CSGN)
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Delayed Quote. Delayed Swiss Exchange - 07/03 11:30:30 am
9.852 CHF   -0.44%
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Demand Outstrips Supply For High-Grade Corporate Bonds

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03/01/2012 | 05:41pm EDT

--High-grade issuance totals $5.5 billion on three issues Thursday

--Investor demand remains strong as yields are at record lows

--Credit Suisse covered-bond deal underscores cheap LTRO financing

   (Adds pricing details for all deals, refreshes secondary trading 
  levels throughout, adds CRT comments.) 
 
   By Patrick McGee 
   Of  
 

The corporate bond market continued to outperform Treasurys on the first day of March, as investors continue to find value even with yields sitting at multidecade lows.

Recent issues saw follow-through buying in the secondary market, MarketAxess data show. Berkshire Hathaway (BRKA, BRKB) unit Burlington Northern Santa Fe's 30-year bonds strengthened 0.03 percentage point against Treasurys, and CBS Corp. (CBS, CBSA) 10-year notes improved 0.02 point.

The primary market absorbed just three new senior unsecured deals, but they were large enough to total $5.5 billion. In addition, Credit Suisse Group AG (CS, CSGN.VX) priced $2 billion of top-rated covered bonds.

Wells Fargo & Co. (>> Wells Fargo & Company) led the way with a $2.5 billion offering of 10-year notes at 1.5 percentage points over the Treasury rate, to yield 3.526%. Last March, the bank sold $2.5 billion at a better spread of 1.3 points over Treasurys, but the yield paid was roughly 0.80 lower this time thanks to lower Treasury rates.

National Australia Bank Ltd. (NABZY, NAB.AU) sold $2.5 billion deal featuring $1.5 billion of three-year notes at 1.6 percentage points over Treasurys, and $1 billion of five-year notes at 1.9 percentage points over Treasurys. They yielded 2.01% and 2.789%, respectively.

The financing arm of Paccar Inc. (>> PACCAR Inc), the heavy-duty truck manufacturer, sold $500 million of five-year notes at 0.70 percentage point over Treasurys, to yield 1.604%.

"There are a ton of issuers that are salivating at this market," said Timothy Cox at Mizuho Securities. "Issuers know it's an opportunistic market, and there's a huge amount of money in the system."

Companies are doing what they can to expedite the process of exiting the earnings blackout period and tap the debt markets, he added. He projects March volume at $75 billion or higher, following a February record of $98.1 billion, according to Dealogic.

Demand for high-grade corporate bonds has been ravenous in recent weeks, with average corporate yields falling to all-time low of 3.28% on Tuesday. Yields stayed put on Wednesday, but with Treasurys losing ground after Federal Reserve Chairman Ben Bernanke dashed hopes of further quantitative easing, corporate bond spreads were able to strengthen 0.03 percentage point to an eight-month low of 1.824, according to Barclays Capital.

Companies such as McDonald's Corp. (>> McDonald's Corporation), BHP Billiton Ltd. (BHP), and Procter & Gamble Co. (>> The Procter & Gamble Company) achieved financing at some of the cheapest rates ever last month. Six companies even issued 30-year bonds at an interest cost of 4% or less, including PepsiCo (>> PepsiCo, Inc.) on Wednesday, according to Dealogic.

High-grade bond spreads continued to improve Thursday, a day after the European Central Bank approved nearly EUR530 billion ($706 billion) of three-year, 1% loans to the European banking system, in round two of its three-year Long-Term Refinancing Operation.

Markit's CDX North America Investment Grade Index, a measure of health for the market, was on track to finish at its best closing level since July 8. It had advanced 0.8% in late trading to sit at 93.1 basis points, versus 120 at the end of 2011.

Traders at CRT Capital said they are getting wary about whether the improvement can continue. High-yield and investment-grade corporate bonds "have clearly become more expensive in recent months," having outperformed Treasurys by about five and 3.50 percentage points, respectively, since late December, with spreads tightening by 1.15 points and 0.56 point, they noted. Meantime, the ratio of company upgrades to downgrades has fallen sharply.

"We certainly understand that many investors discount the insight offered by" the rating firms, CRT said, "but the change in tone derived from their company-specific efforts is too notable to be ignored. It's still too early to cut exposure [to corporates], but that potential is now on our radar screen."

Elsewhere in the primary market, Credit Suisse paid 1.05 percentage points more than the Treasury rate on $2 billion of three-year covered bonds. This was on the wider end of original pricing guidance and compares with Quebec bank Desjardins paying just 0.772 point over the Treasury rate on a five-year covered bond deal Wednesday.

Covered bonds offer investors two layers of protection from default--the faith and credit of the issuer, like an unsecured corporate bond, as well as a portfolio of actively managed assets, typically mortgages.

The deal underscores the higher borrowing costs European banks must pay, even on a triple-A-rated security.

"This is exactly why banks would rather LTRO like mad men than do covered bonds," says Guy LeBas at Janney Capital Markets.

-By Patrick McGee, Dow Jones Newswires; 212-416-2382;

patrick.mcgee@dowjones.com

Stocks mentioned in the article
ChangeLast1st jan.
BERKSHIRE HATHAWAY INC. 0.20% 267551 Delayed Quote.-21.21%
BEST INC. 3.42% 4.53 Delayed Quote.-18.53%
BHP GROUP 0.69% 36.26 End-of-day quote.-6.83%
CREDIT SUISSE GROUP AG -0.44% 9.852 Delayed Quote.-24.82%
MCDONALD'S CORPORATION -0.62% 183.52 Delayed Quote.-7.13%
NATIONAL AUSTRALIA BANK LIMITED -0.85% 18.74 End-of-day quote.-23.91%
PACCAR, INC. 1.93% 75.68 Delayed Quote.-4.32%
PROCTER & GAMBLE COMPANY 0.75% 120.88 Delayed Quote.-3.22%
VIACOMCBS INC. -1.48% 23.25 Delayed Quote.-44.60%
WELLS FARGO & COMPANY 1.00% 25.34 Delayed Quote.-52.90%
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Financials
Sales 2020 20 550 M 21 754 M 21 754 M
Net income 2020 2 506 M 2 653 M 2 653 M
Net Debt 2020 - - -
P/E ratio 2020 9,57x
Yield 2020 2,38%
Capitalization 23 635 M 25 010 M 25 020 M
EV / Sales 2019
Capi. / Sales 2020 1,15x
Nbr of Employees 48 500
Free-Float 93,8%
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Technical analysis trends CREDIT SUISSE GROUP AG
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TrendsBullishNeutralNeutral
Income Statement Evolution
Consensus
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Mean consensus OUTPERFORM
Number of Analysts 20
Average target price 11,41 CHF
Last Close Price 9,85 CHF
Spread / Highest target 72,6%
Spread / Average Target 15,9%
Spread / Lowest Target -38,4%
EPS Revisions
Managers
NameTitle
Thomas Gottstein Chief Executive Officer
Urs Rohner Chairman
James Walker Chief Operating Officer
David Richard Mathers Chief Financial Officer
John Ivan Tiner Independent Non-Executive Director
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