Bank of America Corp. and Morgan Stanley on Wednesday sold $16 billion in investment-grade bonds after Wells Fargo & Co. on Monday became the first big bank to come to market following the collapse of Silicon Valley Bank.
(Bloomberg) — Bank of America Corp. and Morgan Stanley on Wednesday sold $16 billion in investment-grade bonds after Wells Fargo & Co. on Monday became the first big bank to come to market following the collapse of Silicon Valley Bank.
BofA is raised $8.5 billion in bonds in two parts, according to a person with knowledge of the matter. The longest portion of the self-led offering, an 11-year security, yields 1.68 percentage point above Treasuries, said the person, who asked not to be identified as the details are private, after earlier discussions of around 1.9 percentage point. Morgan Stanley, meanwhile, borrowed $7.5 billion in a three-part self-led deal, with the longest portion of the debt offering maturing in 11 years, said a separate person.
Bank of New York Mellon Corp. is also in the market with a $2.5 billion two-part deal for general corporate purposes, the person said.
Issuances from the large banks will likely see “healthy demand” as the bonds are cheap relative to debt from blue-chip firms in the industrial sector plus the Wall Street stalwarts will likely be less exposed to a slowing economy, according to David Knutson, head of US fixed income product management at Schroders. The average spread on financial institution bonds ended Tuesday at 154 basis points, about 22 basis points wider than the broader high-grade index, according to Bloomberg index data.
“The market is coming to the realization that the recent issue with the financial system was the opposite of the Great Financial Crisis,” Knutson said Wednesday. “Big banks were the problem back then. Now it is smaller banks.”
BofA on Tuesday reported first-quarter profit that beat estimates after its fixed-income traders delivered a windfall large enough to cover the rising cost of the bank’s souring loans. Revenue from fixed-income, currencies and commodities trading unexpectedly rose almost 30% to $3.4 billion in the first quarter, the highest in a decade. The increase was driven by improved performance in mortgage, credit and municipal products and higher secured-financing activity for clients, the bank said in a statement Tuesday.
Morgan Stanley’s investment bank and its giant wealth unit, meanwhile, surpassed analysts’ expectations in the first quarter even as profits fell compared with a year earlier, dragged lower by a dropoff in dealmaking and a jump in loan-loss provisions.
Wells Fargo on Monday raised $3.75 billion in unsecured notes maturing in 11 years and callable after 10, raking in over $15 billion in orders at its peak. The self-led deal “may help thaw bank primary markets,” CreditSights Inc. analyst Jesse Rosenthal wrote in a note.
The largest US financial institutions historically have been the biggest debt sellers and April is usually the second-busiest month for bond sales from big banks. But, JPMorgan Chase & Co. analysts expect the firms’ quarterly issuance to likely come in at around $11 billion to $14 billion, a relatively muted level because they have ample funding.
Credit investors are shifting their attention back to inflation and broader economic conditions — away from potential risks emanating from the banking sector — with Fed fund futures pointing towards rate hikes in both May and June, according to Tom Farina, co-head of credit at DWS North America.
“Supply has been moderate recently and bank issuance has been well anticipated so all things considered, bank deals should do fine,” he said.
Wells Fargo and BofA declined to comment. Morgan Stanley and BNY Mellon didn’t immediately respond to a request for comment.
Read more: Regional US Banks to Weigh Costly Bond Sales as Depositors Exit
–With assistance from Nina Trentmann.
(Updates to show the sizes on BofA, Morgan Stanley deals.)
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