The Wall Street Journal-20080206-Where the Cheap Dollar Wins the Day
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Where the Cheap Dollar Wins the Day
Full Text (429 words)The dollar still has friends in high places.
The volume of short-dated dollar-denominated bonds sold by nonfinancial investment-grade borrowers more than doubled last month compared with 12 months earlier and outstripped sale of short-dated euro-denominated bonds by some margin.
That is because companies can save money by selling bonds with maturities of less than 10 years in dollars rather than euros.
To be sure, as a result of the subprime crisis, banks have cut back lending even to companies with top-flight credit, and the risk premium that investors demand above government bonds for financing has risen.
But a series of rate cuts by the Federal Reserve and a sharp drop in Treasurys yields mean companies selling dollar-denominated bonds are being compensated for these higher-risk premiums.
Typically, corporate issuers pay rates of interest based on government yields and risk premiums.
"Despite the widening of spreads, investment-grade corporations can still borrow at attractive interest rates," said John Lonski, Team Managing Director Economics Group at Moody's Investors Service in New York. "This is especially true for investment-grade companies that have a single-A ratings or higher in the shorter end of the curve."
Yesterday afternoon in New York, the euro was at $1.4635 from $1.4827 late Monday, while the dollar was at 106.86 yen from 106.74 yen. The euro was at 156.39 yen from 158.26 yen late Monday. The British pound was at $1.9631 from $1.9738, while the dollar was at 1.1007 Swiss francs from 1.0884 Swiss francs late Monday.
Average yields on U.S. investment-grade corporate debt maturing after one to three years are around 4.13 percentage points, according to Deutsche Bank. Average yields on U.S. investment-grade corporate debt with maturities ranging from three to five years are around 4.92%. One year ago, before the credit crunch, average yields on U.S investment-grade corporate debt maturing after one to three years and three to five years were around 5.5 percentage points, according to Deutsche Bank.
By comparison, average yields on one- to three-year and three- to five-year European investment-grade corporate debt are around 4.56 percentage points and 5.01 percentage points, respectively, according to Deutsche Bank. In January 2007, they were around 4.2 percentage points and four percentage points, respectively.
U.S. nonfinancial corporate borrowers sold more than $12 billion of three-, four- and five-year bonds in January, according to figures from data provider Dealogic, compared with more than $5.6 billion sold in January 2007. By comparison, the volume of euro-denominated three-, four- and five-year bonds from nonfinancial corporate issuers was around $7 billion equivalent last month, compared with roughly $2.9 billion equivalent in January 2007.
