U.S. CORPORATE FINANCE - COMPANIES ON SIDELINES
The recent sharp rise in U.S. interest
rates sparked turmoil in the fixed-income markets, but
underwriters said they doubt company treasurers will rush to
borrow before rates increase further.
    "Corporate treasurers will continue to issue new debt when
they believe they are borrowing at an attractive rate," said an
underwriter with a major Wall Street house.
    Said another, "We will not see a flood of new offerings.
Treasurers are reassessing the market. We will not see new
issuance dry up either."
    Still, the pace of corporate borrowing in the public
finance market has slowed, according to a Reuter tabulation.
    Last week, which was shortened by the Columbus Day holiday,
saw issuance of 1.3 billion dlrs of new debt. That was down
from the prior week's tally of slightly more than two billion
dlrs of new debt.
    In contrast, a year ago it was not unusual to see those
amounts of new offerings in a single day as companies took
advantage of the then decline in interest rates to refinance
old, higher-cost debt or to expand operations via financings at
low, attractive rates, underwriters noted.
    "Companies will conduct financings that they believe are
essential," said an underwriter with a medium-sized Wall Street
firm. "But we will not see much more than that until the market
stabilizes."
    In the meantime, treasurers will probably prefer shorter
term issues, analysts said. For instance, of last week's nine
issues, only one had a maturity of more than 10 years.
    The other offerings had maturities of two to seven years,
with most clustered in the two to three year area, according to
a Reuter tabulation. That is because single-digit interest
rates were had last week only among two-year securities.
    "If people think that interest rates will continue to head
higher, then we could see treasurers rushing to market," said a
trader with a medium-sized securities house.
    "But if people think last week's sharp interest rate rise
is a fluke, treasurers will sit back and wait for rates to
decline before issuing new debt, hoping of course that they are
not missing the boat by doing so," she added.
    Another impediment to new issuance is the lukewarm
reception to new issues by institutional and retail investors
in recent weeks, traders pointed out. Many investors refrained
from buying because they believed rate would rise further.
    "We saw a lot of buying interest last week, but people are
not yet willing to pull the trigger," a broker said. "They
would rather wait and see if the recent rate increase can be
sustained."
    Conflicting forecasts on the likely direction of interest
rates did not help, analysts said. For instance, Henry Kaufman,
chief economist with Salomon Brothers Inc, said in his weekly
"Comments on Credit" that the yields of U.S. Treasury bonds
would probably rise further because the marketplace expects
inflation to rise and the dollar to continue to decline.
    In contrast, Standard and Poor's Corp said on Friday that
prices of debt securities in the fixed-income markets would
recover. The rating agency said neither the economy nor the
dollar justify current high yields.
    Meanwhile, the Chicago Board of Trade is slated to hold a
press briefing on Tuesday in New York about its plans to list a
futures contract based on a corporate bond index.
    That follows last week's announcement by Commodity Exchange
Inc, Comex, that it plans to list on October 29 a new futures
contract based on the investment-grade corporate bond index of
Moody's Investors Service Inc.
 Reuter
