Investment bankers await the cue to float new debt
New York — Wall Street is looking for a ''window.''
Last year many corporations found openings in the financial markets during which they felt comfortable floating new debt issues and underwriters felt they could sell the new debt to borrowers. During two of these so-called ''windows,'' three weeks in June and three weeks in November, some $14 billion, or one-third of all corporate borrowings, took place.
Now, after an extremely slow first quarter, investment bankers are trying to find the windows for this year. Nigel MacEwan, director of the financing division of Merrill Lynch White Weld Capital Markets, noted that ''we would like to see a window; there's a large shadow calendar.'' A shadow calendar is a list of issuers, published by an organization such as Moody's Investors Service, which have said they are either preparing a public offering or are in registration.
Currently, companies or municipalities wishing to float $38 billion worth of securities are listed on Moody's shadow calendar. Among the issuers sitting on the sidelines, for example, are E.I. Du Pont, the Wilmington chemical and energy company; Xerox, the office products company; Citicorp; General Motors; General Electric; IBM; W.R. Grace; and Dart & Kraft Industries, to name a few.
Sam Hunter, director of the debt trading division of Merrill Lynch White Weld Capital Group, said at a Merrill Lynch press conference that he thought such a window would develop when yields on long-term government securities dropped to about the 12 1/2 percent level. Thus, better rated long-term corporate bonds would yield 13 1/2 to 14 percent, a level Mr. Hunter thought businessmen could live with.
Will they see that level soon? Merrill's outlook is for interest rates to remain high until the end of April, when seasonal factors influencing the money supply end. Then, says Jerry Kenney, director of the Capital Group's institutional services division, rates should begin to act like a roller coaster.
First they will soften, reflecting the weak economy. This might provide businessmen with their ''window.'' Then, later in the year, for about a six- to nine-month period, they will rise before falling again by the end of the year.
Mr. Kenney says that, given this scenario, bond market investors trying to figure out where to put their money might consider putting the bulk of it into short-term (60- to 90-day) instruments. Intermediate-term (6 months to 2 years) investments shouldn't pose too much risk, he says, but long-term bonds pose the greatest risk, even though Merrill Lynch believes current yields are attractive. The risk, he points out, ''is that the administration will not work out an intelligent compromise'' with Congress over the budget deficit.
With a $100 billion deficit during a recession, he points out, Wall Street is worried that when the economy begins to expand and inflation picks up again, this could balloon out to $200 billion by 1984 or '85. If that happens, Mr. Kenney concludes, it's possible the government and the bond markets could be on a collision course.
Will the Federal Reserve Board bend to congressional pressure to ease up on the money supply? No, answered Paul Volcker, the Fed's chairman, speaking before the Women's Economic Round Table in New York.
Mr. Volcker told the women's business organization that if Congress reduced the budget deficit, that in itself would lower interest rates.
Reaction by Wall Street women present at the meeting was generally positive. Zita Millet, a vice-president at Merrill Lynch, commented: ''The reaction of most of the people I talked to was positive. I felt Mr. Volcker's stand was extremely well received.'' Another, who works for American Express, noted that ''I've never attended a lunch where no one left after two hours . . . it was interesting the rapt attention of the audience during the question-and-answer period.'' Still another woman, Beverly King, who works as a portfolio manager for Manufacturers Hanover Trust, said, ''I found it a very positive presentation.''
However, Rosanne Cahn, a vice-president and economist at Goldman Sachs, the investment banking house, said, ''If there was any surprise, it is that Mr. Volcker is still taking such a tough stance during a period when the ecomomy is performing so badly. He kept emphasizing the inflation fight, but clearly there must be some consideration of the real economy.''
Ms. Cahn, for example, notes that the consumer price index for March declined 0.3 percent and the gross national product declined 3.9 percent in the first quarter. Over the short term, she notes, there is room for the Fed to be less restrictive, but over the long term, she notes the Fed has to mind its course.
The reaction elsewhere on Wall Street to Mr. Volcker's speech was also generally positive. On the day of his speech, the Dow Jones industrial average gained 9.7 points. Traders are generally hopeful that the Fed maintains a steady course and doesn't cave in to political pressures. For the week, the Dow closed with a gain of 18.74 points, closing at 862.16. Oil stocks were generally stronger after it was reported that prices were firming after production cuts by oil producing countries.