NationsBank Corp. came to market Tuesday with $300 million of 10-year subordinated notes at a price of 65 basis points over comparable Treasury securities.
NationsBank Capital Markets, the Charlotte, N.C.-based bank's investment banking arm, led the underwriting with Merrill Lynch & Co., J.P. Morgan & Co., and Bear, Stearns & Co.
Analysts were surprised by the timing of the issue, which came on a day the yield on 10-year Treasuries rose about seven basis points.
"Considering the market backup in the past couple of weeks, you would have thought the sentiment would be to wait," said Allerton G. Smith, a bank bond analyst at Donaldson, Lufkin & Jenrette Inc.
Some speculated that NationsBank may just be more bearish than others on the direction of Treasury security rates. Others said the bank may have regular funding needs to fulfill.
Experts attributed the Treasury market's volatility to the prospects that Patrick J. Buchanan might win the Republican presidential nomination and to the unresolved debate on balancing the budget.
March 19, the latest deadline for raising the government's debt ceiling, is rapidly approaching with no obvious political solution in sight.
"The markets are very skittish," said the treasurer of a money-center bank. "A lot of the problem is politics. Once the major primaries are over and something is done with the debt ceiling, the markets may quiet down."
Investors and analysts said the new NationsBank debt issue was priced to sell well.
"NationsBank is a big part of the bank bond index," said a bond investor. "If you want to play in the sector, you need NationsBank."
For fixed income investors, banks have become something of a stable investment, perceived as having a lesser likelihood than other categories of any immediate negative news.
"Banks have become a safe haven for the corporate sector as of late," the bond investor said.
Some said the latest issue by NationsBank came as rates remained historically cheap.
"Now is perhaps as good a time to issue as any if you have funding needs today," said a bank analyst.
