Biggest US capital raising boosts corporate bonds

The corporate bond market was given a boost this week when eight companies engaged in the second biggest day of fundraising is US market history.

GE Capital, KfW, Lloyds Banking Group and Dexia Credit lead the borrowing, each sealing USD4 billion-plus bond deals. According to Thomson Reuters, Tuesday alone saw USD24.1 billion being borrowed from US investors.

The sudden influx of corporate bonds could have implications to the collateral profile of lenders and borrowers, many of whom outside the US have eschewed cash as collateral for stock loans.

Some agent lenders have been unwilling to accept corporate bonds over the last two years, due to their perceived lower quality compared with government bonds, and the pricing difficulties which accompany them.

Despite the relative security of fixed income collateral, particularly on a number of law suits in the US based on cash reinvestment losses, there is no indication that the heavy preference for cash as collateral in the US will decline. Cash made up more than 90% of the collateral taken by US stock lenders, according to the recent estimate.