Impervious to volatility in Treasury bill prices, which could affect the cost of debt issuance, six banks came to market with a total of $950 million in bonds Wednesday and Thursday.
Mellon Bank Corp. and First Bank System Inc. issued $300 million and $125 million, respectively, in 10-year paper, while Wachovia Corp. ($100 million), Norwest Corp. ($200 million), and Banc One Corp. ($150 million) all brought five-year notes to market.
Meanwhile, J.P. Morgan & Co. issued debt with a different structure, raising $75 million in 15-year paper that is is noncallable for five years.
Analysts said volatile treasury market conditions favor bank debt over the debt of other corporations because bank debt is matched against floating rate assets such as loans.
The 10-year paper remains historically quite attractive to issuers. Mellon's holding company subordinated notes were priced at a spread of 68 basis points over comparable treasuries.
First Bank System's bank level paper was priced at 62.5 basis points over Treasuries.
Both issues were appropriately priced, analysts said.
"I expect the large institutions like Norwest and NationsBank Corp. will continue to tap this segment of the market because this is part of their ongoing financing needs," said Ethan M. Heisler, a bank bond analyst at Salomon Brothers.
The five year issues came as the cost of swaps to floating rate paper became cheaper.
Banks, which typically try to raise funds whose cost changes with a variable rate, like the London interbank offered rate, issue fixed rate paper and contract with the swap market to convert it to a floating rate. In the last week, the spreads on fixed-rate-swap have increased to 36 from 30, making the swap cheaper for banks.u
