Investors are accepting the smallest yield premiums on bank bonds relative to industrial companies in a year as earnings surpass estimates at lenders from Bank of America Corp. to Citigroup Inc.
Relative yields on U.S. financial debt have dropped to 73 basis points more than those of industrial companies in the U.S., from 105 basis points at the start of June and the least since Aug. 2, Bank of America Merrill Lynch index data show. The bonds are on pace to produce the best monthly returns since January, gaining 2 percent through yesterday.
Elsewhere in credit markets, EBay Inc. plans to sell bonds for the first time since 2010 with a four-part benchmark offering. Party City Corp. was said to cut the interest rate on a $1.125 billion covenant-lite term loan backing its buyout by Thomas H. Lee Partners LP. A benchmark gauge of corporate credit risk in the U.S. fell for a third day.
Smithfield, the largest U.S. pork processor, yesterday sold $1 billion of bonds in its first offering in more than three years after increasing the size of the deal by more than half.
The ratings cuts by Moody’s last month were widely anticipated, so the companies’ bonds have since rallied with the possibility of even greater downgrades removed, Smith Breeden’s Duensing said. As regulatory changes push banks to lower their debt burdens and shift their businesses to lower-risk activities to comply with new capital rules, the debt is more attractive to investors, he said.