(Updates with analyst comment in fourth paragraph.)
July 14 (Bloomberg) -- JPMorgan Chase & Co. is taking advantage of its stature as the most creditworthy of the largest U.S. banks with its $1.75 billion sale of 30-year bonds, the first from an American financial firm in almost six months.
The second-biggest U.S. bank issued the 5.6 percent notes today to yield 140 basis points, or 1.4 percentage points, more than similar-maturity Treasuries, according to data compiled by Bloomberg. Goldman Sachs Group Inc., the last U.S. bank to sell debt with such a long tenor, raised $2.5 billion of the securities at a spread of 170 basis points on Jan. 21.
JPMorgan, the least risky of the six-biggest U.S. banks based on derivatives prices, tapped the corporate bond market as issuance revived after being largely shut this month. The New York-based lender’s better-than-expected earnings helped bolster confidence in U.S. company debt even after Moody’s Investors Service threatened to cut its rating on the world’s biggest economy as negotiations over raising its debt limit faltered.
“Coming to the market with a 30-year bond right after earnings is a show of strength,” said Pri de Silva, a New York- based analyst at CreditSights Inc. “By doing it now, they’re basically getting ahead of any potential uncertainty surround Treasuries and the debt ceiling negotiations.”
In its previous offering of 30-year debt, JPMorgan sold $1.25 billion of 5.5 percent bonds on Oct. 14 that paid 165 basis points more than similar-maturity Treasuries, Bloomberg data show. The debt traded yesterday at 102.5 cents on the dollar to pay a spread of 115.2 basis points, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.
JPMorgan credit-default swaps, which investors use to hedge against losses on the company’s debt or to speculate on creditworthiness, climbed 0.6 basis point to 89.4 basis points after the company reported its highest half-year profit ever, at $11 billion, according to data provider CMA. The contracts have fallen from 114.3 basis points on Aug. 31, CMA data show. investor confidence improves and rise as it deteriorates.
Trading and investment-banking fees bolstered results at JPMorgan as second-quarter net income rose 13 percent from a year earlier, to $5.43 billion, or $1.27 a share, six cents higher than the average estimate of analysts surveyed by Bloomberg.
Credit-default swaps on San Francisco-based Wells Fargo & Co. climbed 2.2 basis points to 98.7, contracts on Bank of America Corp. rose 2.4 basis points to 171.5, and swaps on Citigroup Inc. increased 1.8 basis points to 149.6, the data show. Contracts protecting the debt of Goldman Sachs were little changed at 147.3 basis points and those on Morgan Stanley climbed 1.5 basis point to 174.3, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Banks have sold $240.5 billion of investment-grade corporate bonds in the U.S. this year through yesterday, with 98 percent of offerings maturing in 10 years or less, Bloomberg data show.
JPMorgan is able to issue 30-year debt because it’s “going to generate $20-plus billion of profits in 2011 and 2012, and has amongst the best balance sheets of all banks,” Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York, said in an e-mail.
The company is taking advantage of a difference between yields on 10-year Treasury notes and 30-year government bonds that’s twice as big as the average over the last decade, attracting investors as yields on investment-grade corporate bonds hover at about the lowest this year, said Anthony Valeri, market strategist at LPL Financial in San Diego.
“It’s a way of issuing debt at an attractive level while recognizing the curve is enticing investors to buy longer-term debt,” Valeri said in a telephone interview.
The yield gap widened to 130.1 basis points, compared with a 10-year average of 63.8 basis points, Bloomberg data show. Investment-grade corporate bonds yielded 3.72 percent, versus a 2011 low of 3.68 percent on June 1, according to Bank of America Merrill Lynch index data.
“JPMorgan seems to trade on their reputation, which is obviously very good,” said James Leonard, an analyst at Morningstar Inc. in Chicago. “There’s a belief that U.S. banks have really gotten a lot of their problems behind them, as opposed to the Europeans. Whatever their troubles are, they’re very manageable.”
--With assistance from John Detrixhe, Dan Kruger, Dawn Kopecki, Michael J. Moore and Allan Lopez in New York. Editors: Mitchell Martin, Pierre Paulden
To contact the reporters on this story: Tim Catts in New York at firstname.lastname@example.org; Mary Childs in New York at email@example.com
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