Stabilization in the yield of Treasury bonds and exuberance in the stock market have encouraged issuance of trust-preferred securities after several weeks of poor market conditions.
Issuance of trust-preferred securities had come to somewhat of a standstill as the due date for legislation threatening the securities drew near.
NationsBank Corp. was the first to break the dry spell, with a $500 million issue on Tuesday. Treasurer John Mack said that coming to market at the time was purely "opportunistic."
"We haven't had a supportive market for weeks," said Mr. Mack. "After we saw the (results of the) consumer price index, we decided that the market had become more favorable."
The index, issued by the Labor Department on Tuesday, came in lower than expected, suggesting that inflation was under control.
NationsBank last year filed with the SEC to issue up to $2 billion of trust-preferred, and the latest $500 million brings the bank to that level.
A number of other banks followed NationsBank's lead by coming to market Wednesday, mostly with private deals.
Several banking companies came out with issues of $50 million to $100 million, sources said. They include Central Fidelity Banks Inc., Richmond, Va.; Dime Community Bancorp, Brooklyn; First American Finance Corp., Santa Ana, Calif.; and Imperial Bank Inc., Inglewood, Calif.
Two small banks were expected to issue $25 million to $40 million each in trust-preferred securities, market sources said.
Traders said investors clamored for the NationsBank deal because of its fetching yield. The issue was priced 118 basis points over comparable Treasuries.
Issuers must offer more yield in this type of market because there is still "anxiety over the direction of interest rates," said bank bond analyst Eric J. Grubelich of Keefe Bruyette & Woods.
Jon Bisgaier, an investment banker with Sandler O'Neill, agreed, adding that he expects yields for some of the smaller issues to be much higher than a month ago because of the volatility in the market and because there has been very little issuance in the last two weeks.
The yield on the NationsBank issue was 3 to 5 basis points higher than on previous trust-preferred securities, Mr. Grubelich said.
However, in Wednesday's market, trading of the issue was sluggish, with the spreads of the securities trading at 5 basis points wider than the day of the issue.
Traders said they suspect that "flippers"-short-term investors who buy and then sell quickly to gain a couple of basis points- had gotten into the market.
Nevertheless, said bond trader Michael Buchanan of Conseco Capital Management, Carmel, Ind., "this bond, over the long term, will outperform."
