AFP Blogs

By Brian Kalish, Director, Finance Practice

Global Capital Markets

At least four companies sold $11 billion in debt on Monday — with Citigroup far-and-away the leader, with its units’ $7-billion note offering of FDIC-insured notes under the government’s Temporary Liquidity Guarantee Program (TLGP).

Britain experienced its first incomplete auction of government bonds in almost seven years on Wednesday, potentially dealing another blow to Prime Minister Gordon Brown’s plans to resuscitate the faltering economy.

ANZ National Bank Ltd., New Zealand’s largest lender, started marketing the first New Zealand government-guaranteed bonds in U.S. dollars.

U.S. Treasuries

Treasuries fell Wednesday after a weak auction of $34 billion in five-year notes — a sign that the market might not be able to handle the onslaught of upcoming supply. And there’s more supply on the way. On Thursday, the Treasury Department will auction $24 billion in 7-year notes. The government has been issuing debt at a record pace as it tries to finance about $2 trillion worth of economic stimuli and corporate bailouts.

The Federal Reserve this week will begin buying up to $300 billion in government debt, an effort aimed at lowering interest rates to spur consumer spending and revive the economy. The first purchase is scheduled for Wednesday, followed by another on Friday. Other operations are slated for March 30, April 1 and April 2, the Federal Reserve Bank of New York announced Tuesday.

Central Banks

Norway’s central bank lowered its key interest rate by half a percentage point to 2 percent Wednesday, citing a deteriorating outlook for the global economy. The central bank also cut rates by half a percent on Feb. 4 after slashing them by a record 1.75 percentage points in December.

Poland’s central bank cut its key interest rate Wednesday by a quarter of a percentage point to 3.75 percent — reducing the cost of borrowing to a 19-year low. After five consecutive rate cuts, the National Bank of Poland’s key rate is now at its lowest level since 1990, when decades of communism gave way to a market economy.

Taiwan’s central bank unexpectedly kept its benchmark interest rate unchanged at 1.25 percent, refraining from cutting borrowing costs an eighth time after a decline in exports slowed and stocks climbed.

Commercial Paper Market

U.S. commercial paper outstanding rose in the latest week, reversing the previous week’s decrease and hinting at some stability in that part of the credit market, according to Federal Reserve data released on Thursday. Total commercial paper outstanding rose $14.8 billion to $1.491 trillion in the week ended March 25. The week’s rise included a $2.2 billion increase in asset-backed commercial paper outstanding, bringing that sector to a total of $702.0 billion on the week. The closely-watched unsecured financial CP sector, which reflects the state of the battered banking industry, rose by $26.7 billion to $614.0 billion.

The overall market now is $1.491 trillion in size, substantially lower than a peak of $2.2 trillion in July 2007. At its lowest point since 2001, it stood at $1.2 trillion in December 2003.

Munis

The city of Houston plans to sell about $481 million of revenue bonds this week in the second-largest offering among U.S. state and local governments, as California continues its $4 billion sale. Tax-exempt borrowers plan to sell more than $9 billion for a second week, after Treasury and municipal yields plummeted on the Federal Reserve’s plan to pump $1 trillion into bond markets to ease borrowing costs. Last week, issuers led by Wisconsin, sold $9.3 billion of municipal bonds excluding variable-rate securities, the most in almost a year. California’s deal this week represents the largest tax- exempt offering since October 2007.

LIBOR

The cost of lending between banks was unchanged from Tuesday. The British Bankers’ Association said the London Interbank Offered Rate, or Libor, on three-month loans in dollars stood at 1.22 percent on Wednesday. Libor is down from its peak last October, but still above its mid-January low of 1.08 percent.

Credit Ratings

Berkshire Hathaway Inc. is at risk of losing its “AAA” credit rating from Standard & Poor’s, after the ratings agency revised its outlook on billionaire Warren Buffett’s company to “negative” from “stable.”

Credit ratings agency Moody’s Investors Service on Wednesday cut key ratings for Wells Fargo & Co. because of expectations that the bank’s capital ratios could come under pressure in the near term amid the ongoing credit crisis and recession. Moody’s cut Wells Fargo’s senior debt rating to “A1″ from “Aa3.” Its senior subordinated rating was lowered to “A2″ from “A1,” while the junior subordinated debt rating was cut to “A3″ from “A1.” All those ratings remain investment grade. The rating on Wells Fargo’s preferred stock was slashed to a speculative-grade “B2″ from “A2.”

General Electric Co. lost its top credit rating from Moody’s Investors Service because of higher risks at the conglomerate’s struggling GE Capital lending unit. The expected move follows a similar downgrade of GE this month by ratings agency Standard & Poor’s. Moody’s lowered its ratings for GE and GE Capital two notches to “Aa2″ from “Aaa.” It said the outlook for both is stable. The downgrades mean GE will likely pay higher costs to borrow money.

Mortgages

The average U.S. rate on a 30-year fixed mortgage fell this week on a government plan to increase purchases of mortgage-backed bonds and buy up to $300 billion of Treasuries. The rate dropped to 4.85 percent from 4.98 percent a week earlier.

The New York Federal Reserve said on Thursday that investors had requested $4.7 billion in the first round of its consumer and small business lending program, far below the $200 billion on offer. Investors requested $1.9 billion of loans to buy securities backed by auto loans and $2.8 billion for loans to buy credit card asset-backed securities.

There was no demand for loans for securities backed by student or small business loans in the March 17-19 subscription period for the first round of the Fed’s Term-Asset Backed Securities Loan Facility, known by its acronym TALF. The U.S. central bank had pledged to lend up to $200 billion in this month’s round and said eventually the program could grow to $1 trillion.

Global Capital Markets

Companies issued $41.8 billion of debt overall this week, an 85 percent increase from $22.6 billion last week. Boeing Co., the world’s second-largest commercial-jet maker, sold $1.85 billion in bonds, and Houston-based Halliburton Co., the world’s second- largest oilfield-services provider, offered $2 billion of debt.

Bank of America Corp., Goldman Sachs Group Inc. and the financing arm of General Electric Co. led $29.8 billion of FDIC- backed bond sales, making this the second- busiest week since companies began using the FDIC’s Temporary Liquidity Guarantee Program on Nov. 25. Financial companies have raised about $197 billion through the program.

Covered bond sales have slumped to the lowest level in more than a decade as investors favor government-guaranteed bank bonds which they regard as safer than the mortgage-backed notes. Sales of covered bonds, which are secured on real-estate or public-sector loans and typically get the top AAA credit ratings, shrank 50 percent from a year ago to 27 billion euros ($35 billion) in the first quarter. Banks and companies’ financial divisions sold $120 billion of state-backed bonds in the same period as part of government efforts to unfreeze lending.

Central Bank Watch

The Swiss central bank cut its interest rate close to zero and started buying foreign currencies to stem the franc’s appreciation as the recession sharpens and deflation looms. The Swiss National Bank in Zurich lowered its main lending rate to 0.25 percent from 0.5 percent. The SNB also said it would buy corporate bonds as well as currencies in its first solo intervention in foreign exchange markets since 1992.

New Zealand’s central bank cut half a percentage point from the nation’s key interest rate Thursday, dropping it to a record low of 3.0 percent from 3.5 percent in a further bid to halt the economy’s slide into deeper negative growth.

The Bank of Korea unexpectedly kept its interest rate unchanged at a record-low 2 percent this week, ending the nation’s most aggressive policy easing in a decade.

U.S. Treasuries

Treasuries were little changed after the U.S. sold $63 billion in notes and bonds this week and stocks rose on speculation the worst of the banking crisis may be over. The U.S. will probably borrow $2.5 trillion during the fiscal year ending Sept. 30. That’s almost triple the $892 billion in notes and bonds it sold in the prior 12 months.

Commercial Paper Market

The size of the U.S. commercial paper market rebounded slightly in the latest week after last week’s huge drop, suggesting some stability in this critical part of the credit market. The market rose $3.9 billion to $1.484 trillion in the week ended Wednesday, according to Federal Reserve data released on Thursday. It fell $44.2 billion in the prior week. Despite the increase, the CP outstanding is still far from its peak of $2.2 trillion before the onset of the global financial crisis.

Money Market Funds

Assets in money-market funds jumped $10.71 billion in the latest week, as the seven-day simple yield on taxable funds set another record low. For the seventh consecutive week, the yield came in below 0.5%, dipping most recently to 0.29% from 0.32%. That half-percent mark hadn’t previously been breached since 1975. For the week ended Tuesday, total assets in money-market funds rose to $3.835 trillion. Investors continued to pore money into the cash-like investments as the stock market continued to fall.

LIBOR

The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans stayed at 1.33 percent today, near the highest level since Jan. 8 and up from this year’s low of 1.08 percent on Jan. 14, the British Bankers’ Association said. The Libor-OIS spread, a gauge of bank reluctance to lend, widened to the most since Jan. 9.

Credit Ratings

Standard & Poor’s stripped General Electric of its AAA credit rating, citing the performance of its finance unit and dealing a new blow to one of the world’s biggest manufacturing companies. The Fairfield, Connecticut-based company held a top credit rating since 1956, when S&P first applied an AAA rating to it. Moody’s followed suit in 1967.

Billionaire Warren Buffett’s Berkshire Hathaway Inc. had its top-level AAA credit rating cut by Fitch Ratings, which cited concern about the potential for losses on the insurer’s equity and derivatives holdings

Banking

Moody’s Investors Service said Thursday it expects the financial strength of 23 regional banks to be hurt by sharp declines in commercial real estate prices and continued poor residential loan performance and it is reviewing them for possible downgrade. The deposit and debt ratings for 17 of the same banks also are under review. Moody’s changed the rating outlook to negative from stable on 19 other banks. Moody’s expects to complete the reviews by mid-May, the company said in a statement.

TALF

The Federal Reserve’s program to revive the market for securities backed by consumer loans may start with just a handful of deals, according to participants in the preparations, delaying its prospects of easing the credit crunch.

No agreements have yet been announced ahead of the March 17 deadline for submissions of proposed packages of debt that investors can buy with Fed financing. Brokers and investors have had difficulty agreeing over contract terms