Public-backed debt soars to spark global sales

NEW YORK (Reuters) - U.S. and European government programs to guarantee debt issued by banks have sparked an unprecedented surge in such sales, marking the first signs of a thaw in global capital markets' long winter.

Worldwide sales of corporate bonds rose to $251 billion (176 billion pounds) in January, the highest level since May 2008, and banks sold another $66.2 billion in debt backed by various government plans, according to Thomson Reuters data.

The latest sales data suggest global lending initiatives may be working as borrowing conditions improve, although they are coming at the cost of ballooning public debt.

Since new programs were launched last fall, $192.9 billion in guaranteed debt has been sold globally, the bulk of which comes from the U.S. Temporary Liquidity Guarantee Program, or TLGP.

That program offers full Federal Deposit Insurance Corp backing to financial institutions' sales of bonds with maturities of no longer than three years. Similar programs exist in Britain, Germany, Denmark and Ireland.

Since the introduction of the TLGP in November, total U.S. issuance has reached $154 billion, with Bank of America (BAC.N) leading with about $33 billion, followed by General Electric Capital Corp GEA.N with $24.4 billion. For a list of the biggest borrowers, charts and related blog, please click: here

"Banks need to issue debt so they will come to the market at whatever level they have to, and the fact that you have these government guarantees is encouraging for investors," said John Tierney, a credit analyst at Deutsche Bank in New York. "For companies, now's a good opportunity to jump in."

OUTPERFORMING TREASURIES

Traditional sales of U.S. investment-grade corporate bonds fell to about $44.7 billion in January from about $100 billion in January 2008, as many financial issuers turned to the TLGP program as a proxy for corporate bond sales.

The broader surge in debt issuance comes after U.S. and European governments launched the programs aimed at loosening lending to companies and eventually consumers.

U.S. corporate bond spreads have rallied, driving them to their tightest levels in months.

High-yield spreads narrowed last week to as tight as 1,622 basis points, the tightest levels in two months, and investment-grade bond spreads shrank to 531 basis points, the tightest levels since early October, Merrill Lynch & Co data showed.

U.S. junk bonds posted returns of 6 percent in January, the best among all classes of bonds. That compares with a 13 percent loss for long-dated Treasuries, marking their worst performance in at least 15 years, according to Barclays data.

"For the non-financials, relative to the default risk, people see that the yields and spreads look attractive," Tierney said. "When investors are in a buying mood, you take advantage of it because you never know when the next negative headline will come."

In Europe, investment-grade debt volume reached $162.7 billion in January, accounting for 66 percent of total proceeds. Government-backed debt soared to $19.7 billion in January, the biggest month so far, to bring the total issued to date to $38.5 billion, Thomson Reuters data showed.

France led European issuers with two large deals from financial issuer Societe de Financement and electricity concern Electricite de France SA (EDF.PA).

"We've closed out January having just completed one of the most incredible months for the investment grade credit markets," Suki Mann, a credit strategist at Societe Generale in London, said in a research note. "Money has poured into non-financial corporates from duration and equity funds and retail has done its bit to prop up the secondary market."

While the burst in new sales may begin to wane over concerns about corporate earnings results, some analysts forecast issuance can remain strong and the market may even begin to see some pick up in high-yield bond sales. For more details, see

In the United States, Intelsat and Chesapeake Energy Corp (CHK.N) both increased junk bond sales last week on strong demand. Also in January, Fresenius FREG_p.DE priced a 275 million euro deal due in 2015, the first European high-yield bond sale this year.

"We think corporate issuance should remain strong this year as non-financials increasingly look to the bond market versus loans for funding," Citigroup analysts said in an outlook report.

(Reporting by Walden Siew, Editing by Chizu Nomiyama)