MORGAN Stanley became the latest big Wall Street bank to tap the US investment-grade market on Wednesday (Jul 17) after reporting earnings, as strong investor demand helps lenders borrow at lower yields than would have been possible at the start of the month.
The lender is selling US$8 billion of bonds in four parts, according to a source with knowledge of the matter. The longest portion of the offering, an 11-year security, will yield 1.17 percentage points above Treasuries after initial discussions of around 1.4 percentage points, said the source, who asked not to be identified as the details are private.
Proceeds from the offering will be used for general purposes and Morgan Stanley is the sole underwriter of the deal, added the person. A representative for Morgan Stanley declined to comment.
The sale comes a day after the bank’s trading business posted the biggest increase among its peers in the second quarter. Morgan Stanley, like its rivals Goldman Sachs Group and JPMorgan Chase, beat expectations, solidifying the markets business as a hot spot across the industry.
JPMorgan, Wells Fargo and Goldman have raised a combined US$16.5 billion after reporting second-quarter earnings. On Wednesday’s deal by Morgan Stanley is expected to turbocharge volume from the six biggest banks past the 10-year July average of roughly US$17 billion.
Blue-chip bond yields have fallen to the lowest in five months as Federal Reserve officials step up signals that they are moving closer to cutting interest rates. The average US high-grade yield-to-worst, a measure of borrowing costs, hit 5.21 per cent on Tuesday, the lowest since Feb 6.
Falling yields and strong investor demand have created an attractive playing field for the big banks. Goldman’s US$5.5 billion, two-tranche deal on Tuesday garnered US$23 billion in peak investor demand, wrote Bloomberg’s Brian Smith.
That enabled Goldman to tighten pricing 28 basis points on both tranches, offering investors just two to three basis points in new issue premium, or the extra yield that high-grade borrowers have to offer to sell new investment-grade debt, wrote Smith.
Wells Fargo’s US$2 billion perpetual securities offering, the first preferred stock series by one of the so-called Big Six lenders in the US in almost two months, received more than US$8 billion in orders, according to Smith. That enabled the bank to tighten pricing an eye-popping 52.5 basis points from the initial price talk. BLOOMBERG
