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Enron Mail |
Just some color on the debt markets
-----Original Message----- From: Scott, David C [mailto:david.c.scott@bankofamerica.com] Sent: Friday, September 21, 2001 7:53 AM Subject: Market Update Market Update The market has opened with a weak tone this morning given the collapse in equity futures - Dow futures down 408, S&P down 29 and NASDAQ down 40 - and the collapse of some recent new issues in the secondary market. IBM printed a $1.5bn five year yesterday at T+117 that just traded at T+130. What is leading the collapse in spreads? BAS has several observations: * The absolute level of Treasury yields will continue to result in new issue supply that is priced at ever widening new issue premiums. Most issuers are more coupon sensitive than spread sensitive and, as a result, will be willing to pay a large new issue concession given the attractive level of overall coupons. * Although we have not seen it yet in the corporate bond market, an inverted credit curve is not out of the question given the steepness of the Treasury curve. Two and three year securities in particular, almost need to be priced on a coupon basis. * The technicals of the market are beginning to deteriorate. Insurance companies, traditionally the largest buyer of long assets, appetite for new product may begin fade as claim estimates climb. Balanced funds, may need to begin selling to rebalance portfolios given the meltdown in the equity market. The dealer community and the buyside is trying to hold on to market gains for the year. Despite the negative tone, BAS feels that issuers in the energy sector will continue to have access to the primary market in the near-term (albeit at wider spreads) due to the defensive nature of the sector and the absolute implosion of other sectors (autos, media, lodging, retail, airlines, etc). Please do not hesitate to call should you have any questions on the state of the current marketplace. David Scott Banc of America Securities LLC Energy Debt Capital Markets P: 704-388-8853 F: 704-388-9212 email: david.c.scott@bankofamerica.com
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