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 [转帖]Bloomberg: Company Bonds Post Worst Losses Since '98 |
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Rickshaw
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加入时间: 2006/05/29
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作者：Rickshaw 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
GE to Junk: Company Bonds Post Worst Losses Since '98 (Update5)
June 27 (Bloomberg) -- What started as another winning year for corporate bonds is now a disaster.
Investors lost money on everything from AAA ranked General Electric Co. and Toyota Motor Corp. to junk-rated NRG Energy Inc. and leveraged buyout target Kinder Morgan Inc. Bonds sold by companies lost 1.3 percent on average this year, including interest payments, the worst since at least 1998, according to indexes compiled by Merrill Lynch & Co.
Now the growing perception that the Federal Reserve is struggling to curb inflation is driving the market's tailspin. In the five years ending in 2005, corporate debt gained an annual average of 6.9 percent, beating the 5.4 percent increase for Treasuries and losses on stocks, data gathered by Deutsche Bank AG show.
``If it was my granny, I'd be telling her to keep her money under the mattress for the rest of the year,'' said Gary Jenkins, Deutsche Bank's head of European credit strategy in London.
Company debt securities have lost at least $59 billion so far this year, according to Merrill's Global Broad Market Corporate & High Yield Index, which tracks the performance of 9,300 bonds with a face value of $4.8 trillion. The index was created eight years ago.
Worse to Come
The banks responsible for selling debt are predicting that the market will only get worse. Deutsche Bank, Morgan Stanley, Barclays Capital and Credit Suisse Group say corporate bonds will underperform government securities. Standard & Poor's says defaults will double by the end of the year.
The Fed will raise rates 25 basis points to 5.25 percent in two days, according to a Bloomberg survey of economists. Barclays predicts that will increase to 6 percent by the end of the year.
Investors have less confidence in Fed Chairman Ben S. Bernanke, who increased borrowing costs twice since he took charge in February, than they did in his predecessor, Alan Greenspan, who ran the central bank since 1987. Greenspan boosted borrowing costs 14 times, starting in June 2004.
AAA rated bonds sold by companies including GE, Berkshire Hathaway Inc. and Nestle SA lost 0.97 percent on average this year, the Merrill indexes show.
Investors in some of GE's debt are doing worse than stockholders. The company's 7.5 percent bonds due in 2035 lost 9.4 percent. Shares of the Fairfield, Connecticut-based company are down 5.5 percent. The last time that bond underperformed the company's stock was in 1999. GE is the world's biggest corporate borrower with $258 billion of notes outstanding.
`More Landmines'
While NRG Energy's 7.375 percent notes due in 2016 left investors with losses of 6 percent, shares of the Princeton, New Jersey-based power producer dropped less than 2 percent. The January sale was the biggest junk offering since RJR Nabisco Inc.'s leveraged buyout in 1989.
Debt rated below Baa3 by Moody's Investors Service and BBB- by Standard & Poor's is considered junk.
In Asia, Toyota's 3 percent yen-denominated bonds due in 2018 fell 3.8 percent. PCCW Ltd., the former Hong Kong phone monopoly, lost 5.7 percent on its 6 percent notes due 2013.
Kinder Morgan's notes due in 2011 were among the worst performers in the Merrill index. The yield spread on the gas pipeline company's 5.35 percent securities has widened to 241 basis points, from 85 basis points at the end of April. Co- founder Richard Kinder is leading a takeover offer for the Houston-based company that will be partly funded by borrowing $14.5 billion.
Citigroup Optimism
``We're going to have potentially more landmines in our portfolio that we'll have to dance around,'' said Mitchell Stapley, who oversees about $22 billion as chief fixed-income officer for Grand Rapids, Michigan-based Fifth Third Asset Management. ``Fixed-income isn't going to be an easy place for investors to make money.''
As of March 31, Stapley's fund owned Comcast Corp., Duke Energy Corp. and Kroger Co. securities, according to regulatory filings.
Not everyone's pessimistic. Citigroup Inc., the biggest international bond underwriter, recommends investors take advantage of the price declines and buy.
``We think this is a short-term temporary correction,'' because robust profits will help corporate debt outperform government securities, said Matt King, head of quantitative strategy at Citigroup in London.
King urged investors to purchase bonds of London-based British American Tobacco Plc, the world's second-largest publicly traded cigarette maker, Hellenic Telecommunications Organization SA in Athens and Tokyo-based Mitsubishi UFJ Financial Group.
`Bear Market'
``We've probably got about 60 to 70 percent of the way through the current bond bear market,'' John Pattullo, who helps manage $55.5 billion at Henderson Global Investors in London, said in an interview today on Bloomberg television. Pattullo's Strategic High Yield Bond Fund lost 1.9 percent this year, according to Bloomberg data that excludes reinvested dividends. It was the second-highest ranked U.K.-domiciled bond fund last year.
``The time to buy bonds will be when the interest rate rises in the U.S. have finished,'' Pattullo said.
Inflation concerns have been growing every month since Bernanke took office. The difference between yields on 10-year Treasuries and similar-maturity government debt that is adjusted for inflation shows investors expect consumer price increases to average 2.59 percent over the next decade. That's up from 2.34 percent at the start of this year.
Lift Rates
The increase in price expectations is a sign the Fed is failing to contain inflation even after raising benchmark rates from 1 percent two years ago. The Bank for International Settlements yesterday said that global economic expansion threatens to ignite inflation and called on central banks around the world to lift interest rates.
``I wish that the Fed would increase the rate by 50 basis points and get this the hell over with,'' said Marilyn Cohen, who manages $225 million of bonds as president of Envision Capital Management in Los Angeles. ``Clients are wondering when they're going to stop bleeding.''
The last time the Fed raised interest rates this much was when former Chairman Paul Volker was trying to slow inflation, which reached 13.3 percent in 1979, up from 9 percent the year before.
The central bank boosted its target for overnight lending between banks to 15.5 percent in October 1979 from 7.75 percent in July the previous year. U.S. investment-grade debt lost 2.2 percent in 1979, according to Merrill, as the economy slowed to 3.2 percent from 5.6 percent.
Souring on Bonds
This year, investors began to sour on bonds in January. Merrill's index dropped 1.05 percent in the first quarter, the worst performance since the second three months of 2004. It's down 0.84 percent since March, on track for the first back-to- back quarterly loss since Merrill began tracking the data.
The spread, or extra yield, investors demand to buy corporate bonds rather than government obligations has widened to 113 basis points from 100 basis points before the Fed last lifted its rate on May 10.
``If you invest in long-dated corporate bonds, your potential upside is very small, your downside risk is huge,'' said Karl Bergqwist, who helps manage $27 billion of fixed income at Gartmore Investment Managers in London. Gartmore's Investment Funds Series II - Corporate Bond Fund, denominated in pounds, is down 4.2 percent this year.
Cooling Economy
Most debt investors expect spreads to widen more in the next three months and have been selling, according to a BNP Paribas SA survey of 163 money managers between June 2 and June 12. Investors reduced their holdings of the lowest-rated investment- grade securities to the smallest amount since September 2001, the BNP survey showed.
``It doesn't look good,'' said Mondher Bettaieb-Loriot, who helps manage $900 million for Swisscanto Asset Management in Zurich, and lost 2.5 percent on his biggest fund. ``We're down on the year already, the U.S. economy is cooling off and there are inflation fears.''
Deutsche Bank forecasts spreads on European high-grade company bonds to widen by 10 basis points and by 22 basis points in the U.S. JPMorgan Chase & Co., the biggest underwriter of U.S. company debt, sees spreads widening 5 basis points in Europe and the U.S. this year, said London-based credit strategist Jakob Due.
Wider Spreads
Barclays Capital predicts European high-yield spreads will widen 40 basis points by year-end, while investment-grade spreads stay little changed, said Mahesh Bhimalingam, a strategist in London.
``We're selling corporate bonds in anticipation of wider spreads,'' said Mark Kiesel, who manages about $7 billion for Pacific Investment Management Co. in Newport Beach, California, including the Investment Grade Corporate Bond Fund.
Pimco, which runs the world's biggest debt fund, posted a 4.8 percent loss on the Investment Grade fund, according to data compiled by Bloomberg that exclude reinvested dividends.
Investors are paying more to protect against non-payment. The cost of buying insurance against bond defaults jumped 33 percent since May 1, according to a Dow Jones index that measures credit-default swaps of 125 North American companies with investment-grade ratings.
``The sell-off is a warning that credit fundamentals are poised to deteriorate,'' said Neil McLeish, head of credit strategy at Morgan Stanley in London. ``Higher interest rates worldwide, and particularly in the U.S. are bad for corporate earnings and investor appetite.''
`Challenging Marketplace'
Some companies are borrowing now to avoid even higher costs later. Nevada Power Co., a unit of Sierra Pacific Resources, Nevada's biggest utility, last week paid spreads of 200 basis points to borrow $120 million. When the Las Vegas-based company sold debt with the same terms three months earlier, it paid 30 basis points less.
``We recognize that it's a more challenging marketplace relative to our financings that we've completed earlier this year,'' William Rogers, treasurer of Sierra Pacific, said in an interview. ``We're pleased to have it completed in front of what we see as continuing increases in interest rates.''
To contact the reporter on this story:
Sebastian Boyd in London at [email protected]
Last Updated: June 27, 2006 12:57 EDT
作者：Rickshaw 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 [转帖]Bloomberg: Company Bonds Post Worst Losses Since '98 -- Rickshaw - (10640 Byte) 2006-6-28 周三, 20:43 (1497 reads)
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