Bank debt issuance surged in January with a strong assist from foreign banks that have become more aggressive about snaring U.S. dollars.
According to Securities Data Co., bank bond issuance grew to $11.4 billion in January, with more than $8 billion worth coming from large foreign players.
In December, bank debt issuance was $6.6 billion, including more than $3 billion from foreign banks.
The majority of the foreign issuance was in so-called Yankee bank securities-dollar-denominated bonds from foreign issuers-and American bonds issued in Europe.
January was the third most active month for bond issuance in the last three years. The surge came as the amount of bonds issued by U.S. banks is particularly thin.
Bank bond analysts said they were not surprised at the minimal debt issuance by U.S. banks, which have spent the last four months issuing trust-preferred securities-a hybrid security that enables financial institutions to raise capital inexpensively.
Some U.S. banks continued to issue debt despite the deluge. J.P. Morgan & Co., for example, issued more than $1 billion.
Analyst John Works of J.P. Morgan Securities Inc. said the dwindling supply of bank debt did wonders for the yield on some bank corporate bonds because demand remained the same.
"Strong fundamentals and the attention on trust-preferred securities enabled the spreads on 10-year bank paper to do very well," said Mr. Works.
He added that the gap between the yield on the securities and comparable Treasuries had tightened by 5 to 7 basis points in January.
Bond analysts said that still-higher yields could be found in foreign securities.
"There has been an increasing search for the incremental yield," said Mr. Works.
Bank bond investors are also looking for exposure, said Mr. Works.
"Most U.S. investors already have good-sized exposure with Citicorp and BankAmerica paper, so they may not want to add to their position," he said. "Whereas if you have a new issuer who has never issued, the investors may have little to no exposure and want to add."
Bank bond analyst Katharine Rossow of Chase Securities Inc. said that foreign banks also are trying to take advantage of a favorable interest rate climate.
"The Fed did not change rates this week, so there is a window of opportunity," she said. "But the fear is that the Fed will raise interest rates as opposed to lowering them. Everyone has been waiting for optimal market conditions."
Among the foreign-owned banks in the market in January were several frequent issuers: French bank Societe Generale, which issued $2.3 billion; Deutsche Bank of Germany, $1.5 billion; and Barclays Bank of New York, a unit of the British bank, which issued $1 billion.
