Market observers expect banks and other financial services companies to return to the capital markets with a vengeance this month.

Driving the activity are general capital needs and pressure for financial institutions to increase liquidity against year-2000 problems.

The pace of corporate issuance in June was sluggish because of investors' expectations of higher interest rates. But with rate concerns put to rest, at least for the time being, plenty of deals are now in the works, observers said.

"So many issuers are following the same strategy that you are going to have an awful lot of supply in the next couple of months for investors," said Jonathan Kingsepp, a fixed-income analyst at Duff & Phelps Credit Rating Co. in Chicago.

One of the latest offerings by a financial services company coming to market soon is a seven-year global bond issuance by Household Finance Corp., the Illinois finance company. Depending on investor demand and pricing, the deal could happen this week or as late as next month, observers said.

Some issuers, anticipating a wave of sales, are putting off dangling bonds in front of investors.

A major factor is Ford Motor Credit Co., which recently postponed a $3 billion bond sale, hoping for better market conditions.

"There are definitely things that need to get done," said John Otis, an analyst at Bear, Stearns & Co., "but you still have the overhang of Ford."

There is such a "large supply of issuers that want to put paper into the market that investors will be able to pick and choose," Mr. Kingsepp said.

All other things being equal, the analyst said, investors could gain a premium of "a few basis points" in such a market.

Also, in order to have enough cash on hand when the new year approaches to meet any unforeseen crises, banks must raise short-term debt.

"We are expecting a lot of activity into the third quarter as companies gear up for the year 2000," Mr. Kingsepp said. With regard to short-term paper, "companies will push their maturities well into the first quarter of 2000."

Observers said financial institutions may get a boost from second- quarter earnings announcements to be released in the coming weeks. Favorable reports would help tighten the pricing points at which an issuer sells its bonds.

"The second-quarter reports are going to show pretty good financial performance in terms of profits, credit quality, and debt leverage," said Matthew H. Burnell, an analyst at Merrill Lynch & Co. "That may well provide the backdrop for sizable issuance for the finance companies in the third quarter."

Still, with loan originations a big driver of debt issuance, Mr. Burnell said, a slowdown in lending-due to higher interest rates-could temper financial institutions' need to tap the markets.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.