Financial institutions issued $3.4 billion in debt Wednesday and analysts said more would come to market shortly.
Wachovia Corp. and Freddie Mac issued bonds, taking advantage of favorable market conditions. Wachovia issued $400 million in 10-year notes priced at 99 basis points over comparable Treasuries. Freddie Mac issued $3 billion in 10-year debt at a spread of 62.5 basis points over comparable Treasuries.
On Tuesday, BankBoston Corp. came to market with a $300 million issue of three-year notes priced at 94 basis points over comparable Treasuries.
Analysts said robust economic growth, low inflation, and a respite in foreign economic woes created the opportunity for debt issuance. They also said investors' appetite for debt has overwhelmed their fears of an interest rate hike.
Bank bond issuance has been fueled not only by a more stable environment but by the success of recent huge issues by large banks.
In January, J.P. Morgan & Co. and BankAmerica Corp. issued $1 billion and $1.5 billion in bank debt, respectively.
According to Securities Data Co., banks issued $21.4 billion in straight corporate bond debt in January, $34.1 billion in February, and $1.8 billion this month.
On Wednesday the environment proved particularly favorable for issuing bonds because of the widening in swap spreads. Banks usually issue fixed- rate debt and swap it into floating rate-many times taking advantage of the spread between the two rates.
Bank bond issuance appears to be sluggish for the month so far, but many market experts said that they expect an uptick in bond issuance.
The market has become more attractive and banks are issuing much larger deals than they did in the past, said bank bond analyst Michael Leit of Prudential Securities Inc.
"Banks are doing $300 (million) to $500 million deals at least," Mr. Leit said. "The numbers have gone up dramatically because the market loves liquidity. The larger the deal, the better it usually performs."
Market sources said that they expect companies such as KeyCorp, SunTrust Banks Inc., and Citigroup to come to market soon-especially Citigroup, because it has not issued debt since the fall.
Bank bond analyst Carl de Jounge, of Deutsche Securities, said he expects more banks to issue. "Debt issuance really has been sparse because on a historical basis bank bond spreads are still wide," he said. "And some banks may be holding out for further spread tightening."
As long as investors are buying, banks will stay in the market, he went on. "However, at some point, if appetites get sated and spreads start to widen, then the steady issuance will slow down."