NEW YORK - The outlook for bank bonds has improved recently due to an increasingly positive interest rate outlook and because of diminishing concerns about deteriorating asset quality.
In fact, several large banks have now started to return to the debt markets.
"People are less concerned now about the Fed raising rates, and we didn't really see any banks blow up after questions were raised about Wachovia's asset quality, so that issue became less of a concern," said Ethan Heisler, a fixed-income analyst at Salomon Smith Barney in New York.
News in the second quarter of a $200 million charge to increase Wachovia Corp.'s provision for loan losses was seen by some as a signal of problems in the banking sector, but most of the banks that reported earnings on schedule met analysts' expectations.
Secondary market levels have been more stable, and the primary market has also stepped up recently to support bank financing. Bank One Corp.'s Bank One Capital unit Wednesday is marketing $635 million of trust preferred securities in two parts.
The deal includes $475 million of 30-year fixed-rate bonds, expected to yield 2.97 percentage points more than Treasury bonds; and $160 million of 30-year floating-rate bonds, expected to yield 1.65 percentage points more than the London interbank offered rate.
Banc One Capital Markets and Salomon Smith Barney are joint book runners for the deal.
Bank One's offering was announced Tuesday, soon after the Federal Reserve's Federal Open Market Committee said it would not change its 6.5% overnight bank lending rate target.
Last week $2.3 billion of First Union Corp. debt and $2.5 billion of Wells Fargo & Co. debt flowed into the market. Banks are typically among the first issuers to jump into the market when there is a perceived shift toward positive sentiment.