BT and British Airways surprise US bond market with deals

A pair of blue chip UK borrowers surprised the US high-grade market by launching new deals on Tuesday, testing investor appetite for risk in wake of a massive liquidation of global assets that has paralysed new issuance for four consecutive sessions.
But the deals from flag-carrier British Airways and telecoms giant BT are unlikely to reverse the overall tone of the bond market, which has seen would-be issuers of debt race to the sidelines amid a sell-off that has driven 10-year Treasury yields up around an almost two-year high.
Rates were again approaching 2.6 percent on Tuesday morning, following upbeat economic data on housing, durable goods and consumer confidence. Positive data are now seen as having a negative impact on the markets, because the improved numbers make it more likely the Federal Reserve will slow down asset purchases sooner rather than later.
Tuesday's deals are hardly typical for the US investment-grade market, which has seen new issuance coming in at roughly half the expected volume for the month.
A defensive leader in a sector that tends to be resilient even in volatile markets like the current one, BT (rated Baa2/BBB/BBB) stepped forward this morning with a USD600m (no grow) SEC registered three-year (6/28/16) senior note. The notes contain a make-whole call, as well as a 101 percent put upon a change of control or a downgrade below investment grade. Initial price thoughts are low 100s. Proceeds of the deal, led by RBS, BNP Paribas, Citi, Deutsche Bank and HSBC, will be used for general corporate purposes.
BT last came to the market on June 19, 2012 with a USD1.25bn two-part deal that consisted of a USD500m 1.5-year FRN at 112.5bp over Libor and a USD750m 2.0 percent 3-year at 162.5bp over Treasuries. The BRITEL 2 percent 2015s were quoted in the secondary at T+57bp. Initial price thoughts on the new 3-year is low 100s.
Relative comparisons include the BRITEL 5.95 percent 2018s, quoted at T+100bp, Vodafone 0.9 percent 2016s at T+80bp, Deutsche Telecom 3.125 percent 2016s at T+70bp, Verizon 2.0 percent and 3.0 percent 2016s at T780bp and T+60bp, respectively, and the AT&T 0.9 percent and 2.4 percent 2016s at T+55bp and T+80bp.