Attention Wal-Mart Shoppers !!! $5.75 Billion in Bonds for sale!! : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Pre-2000 funding crush fueling swap spread blowout 10:12 a.m. Aug 06, 1999 Eastern

By Christina Fincher

LONDON, Aug 6 (Reuters) - An expected rush by Eurobond borrowers to raise funds ahead of an expected Y2K-related year-end market shutdown is fuelling the sharp spike in swap spreads seen this week, bond analysts said on Friday.

Swap spreads, which reflect the interest rate premium a double-A rated borrower has to pay over government bonds, are a key barometer of credit risk in the financial markets.

``We are still expecting a significant new issues pipeline in September/October time,'' said one bond originator.

``Y2K issues mean many investors will be closing their books early and borrowers needing to raise funds will have little option but to join the funding crush.''

Heavy expected corporate bond supply going foward is adding to pressure on swap spreads, which have spiralled higher recently as fears of higher interest rates in the United States have ignited liquidity concerns.

Benchmark 10-year dollar swap spreads soared to 114 basis points this week, their widest levels in a decade while other major currency swaps hit levels not seen since Russia's debt crisis last September.

But analysts note important differences between the credit crunch of last autumn and the latest bout of swap spread widening.

``Last year, two major credit events -- the near-collapse of Long Term Capital Management and Russia's debt crisis -- blew spreads wider,'' said Edward Marrinan, head of European credit research at J.P. Morgan.

``To date, there have been no credit concerns on this magnitude and swap spreads are drifting wider largely on liquidity rather than credit concerns.''

On Thursday, as U.S. swap spreads hit decade-highs, retail giant Wal-Mart priced a $5.75 billion bond -- the fourth largest bond in U.S. corporate history -- to finance its acquisition of British supermarket chain Asda.

But fears of even wider swap spreads and higher borrowing costs going forward may be one reason to explain the recent issuance rush, analysts said.

================================================================== $5.75 b-b-b-billion???

See earlier classification of Pollys(doomers) thread ... business owners are giving paper to the sheeple in exchange for (near)-cash. Business owners --- if it's good enough for Wal-Mart --- activiate your LOC now!!

And you type 5 pollys hoping for a buy-out or IPO...forget it!! =========================================================== If you live within 8 km of an Arthur Treachers, you're a scone.

-- Nelson Isada (, August 06, 1999


It's a mad dash for cash for all the Big Boys.

See type y2k in *Site Features* then read "Flood of Corp Borrowing...."

Too tuff to link for me.

-- Carlos (, August 06, 1999.


Friday, August 6, 1999

Flood of Corporate Borrowing Causing Commotion in Markets

Securities: Y2K worries are pushing firms to borrow now and to hedge their bets on interest rates.

By THOMAS S. MULLIGAN, Times Staff Writer

NEW YORK--A deluge of corporate borrowing--spurred in large part by worries about the year 2000 computer bug--is causing havoc in financial markets and sending some measures of "credit risk" to their highest levels since 1987.

That could put further upward pressure on key interest rates, including those for mortgages, analysts warned.

Although Treasury bond yields fell on Thursday, yields on corporate and mortgage-backed bonds rose. Indeed, Treasuries benefited as some investors sought safe haven from turmoil elsewhere in the market, pushing the yield on the bellwether 30-year T-bond to 6.04% from 6.10% on Wednesday.

Traders were focused Thursday on action in the so-called derivatives market, where companies and institutional investors use hybrid securities to make or hedge bets on interest rate trends.

Prices for a key type of derivative--interest rate swaps--rose sharply, which traders said reflected a rush of companies attempting to protect themselves against rising market rates.

In a swap, a corporate treasurer planning to borrow via a bond offering might enter into an agreement with another institution to hedge against higher rates.

The institutions on the other side of those agreements were demanding greater premiums Thursday--in fact, the highest premiums on such swaps since the October 1987 stock market crash.

Swap "spreads" reflect the interest rate premium that a double-A rated corporate borrower has to pay over Treasury securities. Spreads on 10-year swaps ballooned Thursday to more than 1.15 percentage points above yields on 10-year Treasury notes.

There were some rumors Thursday that a major bank, bond dealer or hedge fund had taken large losses on derivatives, which also could have hurt the market.

But derivatives traders at five out of six firms said they believed the rumors to be exaggerated if not completely untrue.

Most traders said the upheaval in the swaps market is being pushed almost exclusively by the huge supply of corporate bonds on the horizon.

Through July, according to Securities Data Co., $587 billion worth of investment-grade corporate bonds had been issued this year--more than two-thirds the amount issued in all of 1998. Now, tens of billions of bonds are scheduled for sale in coming weeks.

A key reason for the bond glut is concern over the Y2K bug and the potential for financial and communications snarls Jan. 1 if computers will read the year as 1900 instead of as 2000.

"Y2K is clearly moving ahead in people's consciousness," said economist Ian Shepherdson of High Frequency Economics.

Corporations and government agencies have spent billions of dollars fixing the problem, and the cautiously optimistic consensus seems to be that there will be no New Year's Day disaster.

However, the outside chance of havoc in the payments system, for example, is causing insurance firms, pension funds and other big buyers of bonds to signal that they may shy away from securities purchases later in the year.

"Nobody's announcing that Y2K is the reason, but they are thinking about it," said Kevin Akioka, senior portfolio strategist at Payden & Rygel in Los Angeles.

The buyers' skittishness, in turn, is causing corporations to rush to borrow now rather than try to sell bonds in the fourth quarter.

"No one wants to be questioned in the fourth quarter as to why they did not [complete financing] beforehand," said Ethan Heisler, vice president of corporate bond research at Salomon Smith Barney.

Although rising bond yields could deter some corporate borrowers, it isn't clear how many are prepared to step away.

* * *

Bloomberg News and Reuters were used in compiling this report.

* * *

Borrowing Binge

Major U.S. companies are already on pace to borrow more than $1 trillion this year throughbonds, and a rush of borrowing is expected in coming weeks. Issuance of investment-grade corporate bonds, in billions:

Annualized pace: $1,006 billion

Through July: $587 billion

Source: Securities Data

Copyright 1999 Los Angeles Times. All Rights Reserved

-- (M@rket.watching), August 07, 1999.

Here is the link to the article mentioned above.


  Flood of Corporate Borrowing Causing Commotion in Markets

-- Brian (, August 07, 1999.


You've lost me

"If you live within 8 km of an Arthur Treachers, you're a scone."

AT = 7-11???

-- Andy (, August 07, 1999.

markets fear hedge fund collpse may be looming


-- maggie (, August 07, 1999.

I goofed on the location.It is suppose to be

-- maggie (, August 07, 1999.


I was referring to this link from today: 397

100,000 still powerless in meter crisis

Thousands of London Electricity's pre-paying customers have been left without hot water, light, or cooked food for days, as a plan to save them from the millennium bug goes "horribly wrong".

They dare not even sleep for fear they miss a knock at the door from an engineer coming to fix the problem with their Powerkey meters, because they have been warned that if they do it could be 24 hours before help arrives again.

A London Electricity spokeswoman admitted: "It's all gone horribly wrong in London, due to technical problems with a piece of equipment which occurred at the weekend."

Around 400,000 customers have been told to change their Powerkeys in order to keep their meters working when the new year begins. Unfortunately, a problem with the new keys corrupts the meters in 25 per cent of cases and the customer is left without power.

Theatre stage manager Charles Lloyd, who lives near Elephant and Castle, said: "We've got #1.46 left on the meter but when that goes we won't have any supply. For the time being we're not going to use the cooker or washing machine. I went to change the key so the meter could be adapted, but when I got home it did not give me any credit and it's corrupted now.

"We've been told it could be two, three or four days before anyone can get round to fix it. It's just mucking people about. It's a total cock up."

Grandmother Susan Ilyas was without power for 40 hours. It was eventually switched back on during a five-minute visit from an engineer.

Sales adviser for the Body Shop, Mrs Ilyas, who lives in Paddington Green, said: "I was told someone would be round in 24 hours but they weren't.

"I had no sleep waiting for someone, because I was told that if I missed them then it would be another 24 hours before they came round to fix it. I was too scared to go to bed. I have had to have time off work because I have been so tired.

"We had no hot water and weren't able to have baths or wash clothes. It takes ages to get through to the hotline number and when you do nobody seems to know what they are doing."

She also complained of rudeness by people on the hotline. She claimed that when she pointed out to an operator that people on ventilators or home dialysis need electricity to live, the voice on the other end of the line allegedly told her: "Well, they'll be dead then."

Father-of-three Paul Cavender, aged 37, is demanding compensation after being without power for 37 hours.

He said: "We couldn't even cook or have the hot water on. Everything we've got is electric. I reckon we've lost #200 in food that was frozen not to mention having to eat out, and buy candles and torches.

"London Electricity told everyone to go out and change their keys, so this is not a problem that has been sparked by the customer. It is entirely their fault."

The spokeswoman said London Electricity was doing its best to sort the problems out and that compensation would be available to aggrieved customers.

She said: "We have still got to work out the exact cause of the problem. Our guys are working till midnight in an effort to sort the problems out. I can only apologise if staff have been rude to customers, it has been stressful."


I thought the "Well, they'll be dead then" was a nice touch. Very Milne-esque (5 mi=8 km)

-- Nelson Isada (, August 07, 1999.

Markets Fear Hedge Fund Collapse May Be Looming

-- (M@rket.watching), August 07, 1999.

Andy -

Actually, I think "Arthur Treacher's" are a chain of fish'n'chips fast-food restaurants usually found near urban centers and freeways in the UK, so the slogan still works.

In my experience, the closest thing in Great Britain to the US' 7-11s are the small, usually family-owned, "corner shops" or convenience stores. These tend to be quite different from our sterile 7-11s and they exist throughout the country, both in urban centers and small towns. Therefore, the slogan "Anyone living within 8km of a corner shop is a scone" would mean that 95% of the population is a scone, which is a bit over-the-top.

I mean, some may indeed be scones, but others will be crumpets, still others muffins, and a lucky few will be those lovely little "bikkies" that go so well with Earl Grey tea. 8-}]

-- Mac (sneak@lurk.hid), August 07, 1999.

"Well, they'll be dead then." --- London Electricity hotline

"In the long run we are all dead." --- British economist John Maynard Keynes

A bunch of doomers, the lot of 'em. 8-}]

-- Mac (sneak@lurk.hid), August 07, 1999.

Crumpets!! _That_ was Le Mot Juste!

"In the long run we are all dead". IIRC, this was Keynes reply to a reporter when questioned about the long term effects of his (Keynes) proposal of governmental deficit-spending to prime the economy.

I am rereading Prof. Philippe Jorion's Big Bets Gone Bad: The largest Municipal Failure in U.S History [Orange Co CA],

where a politically savvy HS grad (Robert Citron) managed to lose 1.6 t-t-trillion dollars from reverse derivatives, thus singlehandedly increasing municipal bond costs in US. I would recommend all those with a background in differential equations to look over the Black-Scholes pricing model for options (hey, it was worth a Nobel Prize),

and contemplate the significance of the original question on this thread, namely what happens if interest rates increase at the end of CY 1999? With 100+ t-t-trillion dollars of interest-rate-sensitive derivatives (swaptions, reverse repos, and other concepts probably best understood by owners of pawnshops) flying around in the world, and with all the Smart Money betting on DEFLATION and DECREASING interest rates, what will happen when every Fortune 1000 company does a Wal-Mart, driving UP interest rates because of Y2K concerns RE capital availability? Scholes was on the board of Long-Term Capital Management (LTCM), bet the wrong way on the Russian ruble, interest rates shot up, and only the intervention of St. Alan G saved them (and the equities market).

If you look at the B-S equation, one of the assumptions is that interest rates are assumed, where sigma is volatility of interest rates.


Well, as they say in the real world, sigma happens.

-- Nelson Isada (, August 08, 1999.

Corrigendum: Citron lost 1.6 billion (not trillion).

Addendum: the US economy is 7 trillion dollars (cf 100+ trillion for derivatives).

-- Nelson Isada (, August 08, 1999.

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