By Tim Catts May 18 (Bloomberg) -- Corporate bond issuance in the U.S. is showing signs of a revival as investors gain confidence Europe’s sovereign-debt crisis may be contained. Borrowers came to the market with at least $3.2 billion of debt yesterday, after selling $1.15 billion a week earlier and $13.6 billion in the five days ended May 14, according to data compiled by Bloomberg. Franklin Resources Inc., the manager of the Franklin and Templeton mutual funds, sold $900 million of notes in its first offering since 2003. EOG Resources Inc., a Houston-based pipeline operator, issued $1 billion of bonds. The flurry signals improving sentiment that the European plan to provide almost $1 trillion of loans to help indebted nations avoid default will keep Europe’s crisis from spreading around the globe. Of the 460 companies in the Standard & Poor’s 500 Index that reported first-quarter results, 77 percent said earnings exceeded analysts’ estimates, Bloomberg data show. “Fundamentally, companies are doing great and balance sheets are strong,” said Gregory Nassour, head of investment- grade portfolio management at Valley Forge, Pennsylvania-based Vanguard Group Inc., who helps oversee about $40 billion of assets. “I would expect issuance to continue unless something new comes out of Europe to quiet it down.” Nissan Motor Corp. of Yokohama, Japan, the country’s third- largest carmaker, plans to sell $750 million of bonds backed by auto leases, a person familiar with the offering said. Banco Santander SA, Spain’s largest bank, will issue $1 billion of notes backed by auto loans, the bank said yesterday in a filing with the U.S. Securities and Exchange Commission. The Higher Education Loan Authority of the State of Missouri is marketing $817.7 million of debt backed by student loans, a person said. Europe Lags Europe’s market has yet recover, with no benchmark corporate sales since May 5. A benchmark offering in Europe is typically at least 500 million euros ($617 million). Elsewhere in credit markets, the extra yield investors demand to own corporate bonds instead of government debt was unchanged at 171 basis points, or 1.71 percentage point, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. The spread peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. Average yields rose 1.9 basis points to 3.946 percent. Libor The rate banks pay for three-month loans in dollars climbed to the highest level in more than nine months. The London interbank offered rate, or Libor, rose for a fifth straight day to 0.46 percent yesterday, from 0.445 percent at the end of last week, according to the British Bankers’ Association. The spread between the three-month Libor rate and the overnight indexed swap rate, a barometer of the reluctance of banks to lend that’s known as the Libor-OIS spread, increased to 24 basis points, the most since Aug. 17, from 22. The three-month Singapore Interbank Offered Rate rose to 0.46 percent, near a nine-month high, from 0.45083 percent. The cost to protect against defaults on U.S. corporate bonds rose for a third day to the highest since May 7. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.6 basis point to a mid-price of 108.5 basis points, according to Markit Group Ltd. In London, the Markit iTraxx Europe index of credit swaps on 125 investment-grade companies climbed 7.2 basis points to 116.9, Markit prices show. Both indexes typically rise as investor confidence deteriorates. Asia Swaps The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 4 basis points to 122.5 basis points as of 8:32 a.m. in Singapore, Barclays Plc prices show. The Markit iTraxx Australia index decreased 7 basis points to 107 as of 10:18 a.m. in Sydney, according to Nomura Holdings Inc. prices. In emerging markets, the extra yield investors demand to own bonds instead of Treasuries fell 2 basis points to 293 basis points, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Spreads reached 328 on May 7. Argentine bonds declined for a second day on reduced investor demand for higher-yielding emerging-market assets. The yield on Argentina’s 7 percent dollar bonds due 2015 rose 18 basis points to 12.83 percent as of 5:15 p.m. in New York, according to Bloomberg pricing. The bond’s price slid 0.56 cent to 78.75 cents on the dollar. Investors who aren’t convinced European leaders have solved the continent’s debt crisis may be buying U.S. corporate debt in a bet it won’t suffer as much, said Arthur Tetyevsky, chief fixed-income strategist at Broadpoint Gleacher Securities Inc. in New York. ‘Best House’ “The result has been investors putting capital to work in the U.S.,” Tetyevsky said. “It’s like buying the best house money can buy in a bad neighborhood.” Corporate bond sales have fallen 59 percent this month to $18.2 billion, compared with $44.6 billion in the same period in April, Bloomberg data show. Companies issued $52.7 billion of investment-grade bonds in all of April and $33.3 billion of high-yield debt, which is rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. Investment-grade company debt returned 0.43 percent last week, rebounding from a 0.33 percent loss in the period ended May 7, Bank of America Merrill Lynch index data show. High-yield debt gained 0.69 percent last week and was down 1.8 percent for the month through May 14. Franklin Resources Franklin Resources’ $250 million of 3.125 percent notes due in 2015 priced to yield 95 basis points more than similar- maturity Treasuries, Bloomberg data show. In its April 2003 sale of $420 million of five-year, 3.7 percent notes, the San Mateo, California-based company paid a spread of 88 basis points. EOG Resources’ offering included $500 million of 10-year notes that pay a spread of 95 basis points, Bloomberg data show. The company sold $900 million of debt due in 2019 a year ago at 245 basis points more than Treasuries. High-yield bond sales haven’t recovered, Bloomberg data show. Last week’s $10.5 billion of new investment-grade bonds were 37 percent less than the 2010 average of $16.5 billion, while junk issuance of $3.12 billion was 45 percent below the $5.67 billion average. Regal Entertainment Group, the largest U.S. cinema operator, postponed a planned offering of $250 million of senior notes due 2019, citing “unfavorable market conditions,” the Knoxville, Tennessee-based company said in a statement. American Tire Distributors Holdings Inc. of Huntersville, North Carolina, planned to sell $250 million of seven-year notes and Franklin, Tennessee-based Capella Healthcare Inc. is marketing an offering of $500 million of debt due in 2017, according to people familiar with the transactions. To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

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