Conditions for issuing debt could not be better, but few banks are expected to take advantage of it.
During favorable interludes, banks typically emerge in droves to issue opportunistically. Right now, however, most banks do not need to act because they are already well-capitalized. Plus, there are other reasons not to move.
Since Federal Reserve Chairman Alan Greenspan hinted at an interest rate cut during a speech at the University of California at Berkeley last Friday, the environment to issue debt has become much more attractive.
Also adding to the favorable environment is a widening swap curve - which lets bankers issue at more attractive pricing - and a rallying Treasury bond market.
The environment has turned so advantageous that some bank bond investors are looking to buy again after a bruising month of losses.
In the last few days bank bonds' spreads - the difference between their yields and those of Treasuries - have tightened by as much as 10 to 15 basis points depending on the issuer.
Market conditions got the attention of at least one banking company. On Tuesday, Fleet Financial Group Inc. filed a shelf registration with the Securities and Exchange Commission to issue $1.5 billion in debt.
"However, filing a registration does not mean you are going to issue immediately," said bank bond analyst Eric J. Grubelich of Keefe, Bruyette & Woods Inc. "The market is still too turbulent. Just because the Dow Jones industrial average went up 380 points on Tuesday does not mean that everything is better."
Joseph J. Labriola, who heads the corporate bond department at PaineWebber Inc., is equally pessimistic.
"With Treasury rates where they are, it suggests there would be a healthy issuance calender," said Mr. Labriola. "But there has been so much market volatility in the fixed-income arena that managers don't want to see their companies taking the risk."
"What puts a monkey wrench into raising capital is that investors have endured a lot of pain," he added. "And if banks bring an issue, they will have to price it considerably cheaper than what is already out there."
The danger in doing that is that bonds already issued would suffer as investors swap out of them to snap up cheaper issues.
Still, investors just are not that keen about buying corporate debt no matter what the price is.
"Investors have been burned significantly and are likely to stay on the sidelines licking their wounds because of that," Mr. Labriola said.
The conditions in the market may be good, but they are still not good enough to get banks to come to the capital markets, said bank bond analyst Van B. Hesser at Goldman, Sachs & Co.
"Rates have fallen, but the concerns for financial systems worldwide have not," said Mr. Hesser. "The strongest banking system in the world, which is the United States, is reluctant to tap the market when credit spreads are at five-year wides."
Investment bankers who underwrite such deals are reluctant to bring them to market because most already have bulging inventories of bank and industrial bonds that they cannot move. Losses in bond portfolios have been severe.
"The last thing the issuer wants to see is an underwriter try and do a deal and see it not sell well because of apprehension or lack of interest," said Mr. Grubelich.