Investor fears of an imminent hike in interest rates have slowed bank bond issuance, but observers say the lull will be temporary.
As interest rates tick upward, some banks have scaled back or postponed issues, waiting for more stability in the market.
"It's generally hard to do a deal in the face of a bond market that is backing up," said Eric Grubelich, an analyst for Keefe, Bruyette & Woods Inc. "It's like trying to catch a falling knife-do you try to grab it in the air or wait until it hits the floor?"
Banks issued $106 billion of debt in the first quarter, according to Securities Data Co. Issuance dropped to $28 billion in May, from $41 billion in April.
But analysts said banks will get back into the market before long because of their need to replace expiring debt and finance new business.
"There are a lot of financial companies that have yet to complete their financial requirements for the year," said John Otis, a bank bond analyst for Bear, Stearns & Co. in New York.
Large banks are making sure they will be poised to act once they feel the time is right.
Wells Fargo & Co. last week filed a shelf registration with the Securities and Exchange Commission for up to $10 billion worth of securities. Part of the proceeds from the sales would be used to make investments in existing and new subsidiaries and to repayment of short-term and long-term debt, according to the filing.
A number of factors point toward a lowering of interest rates by yearend, said George Simon, fixed-income strategist at A.G. Edwards in St. Louis.
He said a slackening supply of Treasury bonds-because of the budget surplus-will help push yields down. So will investors seeking safer havens as 2000 approaches. And rates on 10-year U.S. bonds, now at 5.76%, are higher than issues abroad. For example, rates on bonds with equivalent terms are hovering around 4.22% in Germany and 1.615% in Japan.
"If things stabilize and (investors are) more comfortable with banks' credit risk, it is just a matter of time before they return to the market," said Carl de Jounge, an analyst for Deutsche Bank Securities in New York.