Floaters Revive as Investors Seek Protection: Credit Markets

Sales of floating-rate debt are accelerating as Pacific Investment Management Co.’s Bill Gross says investors should buy the securities to protect against a possible rise in interest rates.

Australia & New Zealand Banking Group Ltd., life insurer MetLife Inc. and General Electric Co.’s finance unit led $5.25 billion in sales of floating-rate bonds this week, the most in 11 months, according to data compiled by Bloomberg. Sales declined 52 percent last year from 2009.

Companies are taking advantage of investor concern that the Federal Reserve’s expansion of record monetary stimulus will drive interest rates higher. Futures show traders are betting there’s a 50.1 percent chance the central bank will boost borrowing costs by November.

“There’s interest in owning floating-rate exposure because at some point the continued improvement in the economy is threatening to push rates upward later in the year,” said Justin D’Ercole, the head of investment-grade syndicate for the Americas at Barclays Capital in New York. “If everyone is maxed out on fixed-rate paper, they’re going to suffer.”

Rising yields brought on by faster inflation will mean that “long-term bondholders lose their heads” and face losses, Gross, who manages the world’s largest bond fund, wrote in a commentary posted yesterday on Newport Beach, California-based Pimco’s website.

Gross recommended “floating as opposed to fixed interest obligations,” as well as emerging-market corporate bonds, sovereign debt and notes in currencies other than the dollar.

Treasury Yields

The yield on the benchmark 10-year Treasury note has soared to 3.47 percent from 2.38 percent in October, the lowest since January 2009. It may climb to 3.53 percent by year-end, according to the average estimate in a Bloomberg survey of 66 economists.

Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of similar maturity government debt fell 1 basis point to 166 basis points, or 1.66 percentage points, Bank of America Merrill Lynch’s Global Broad Market Corporate Index shows. Yields averaged 3.965 percent.

Companies sold $9.7 billion of bonds in the U.S. yesterday, following $21.2 billion on Jan. 4, the most since Sept. 15, 2009, Bloomberg data show. Leveraged loan prices rose to the highest in almost two years and junk bonds spreads declined to the lowest since November 2007.

Melbourne-based ANZ raised $3 billion in a three-part offering, including $1 billion of floating-rate notes due January 2014 that pay 74 basis points more than the three-month London interbank offered rate. The bank initially offered $750 million of the securities.

Toyota Bonds

Toyota Motor Credit Co., the U.S. finance unit of the world’s largest automaker, sold $1.6 billion of 5- and 10-year debt, locking in cheaper rates than in its last benchmark offering of the maturities, Bloomberg data show.

Toyota Motor Credit’s $900 million of 2.8 percent, 5-year notes pay a spread of 70 basis points and its $700 million of 4.25 percent, 10-year bonds yield 80 basis points above Treasuries, the data show. In June, the Toyota Motor Corp. unit sold $1.25 billion of 3.2 percent, 5-year notes at a 120 basis- point spread and $750 million of 4.5 percent, 10-year notes at 130 basis points.

Bondholder Protection

The cost of protecting European bank debt from default rose to a six-month high on concern so-called burden sharing proposals may force bondholders to shoulder losses from bank failures. The Markit iTraxx Financial Index of contracts on 25 European banks and insurers climbed to 185.5 basis points, the highest since June 9, JPMorgan Chase & Co. prices at 11 a.m. in London show. The European Commission may issue a new draft of the rules today.

Contracts insuring European high-yield corporate bonds fell, with the Markit iTraxx Crossover Index of credit-default swaps on 50 speculative-grade issuers down 3 basis points to 415, JPMorgan data shows.

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The Standard & Poor’s/LSTA US Leveraged Loan 100 Index climbed for an eighth straight day, rising 0.29 cent to 93.5 cents on the dollar. The index, which tracks the 100 largest dollar-denominated first-lien leveraged loans, is at the highest level since Jan. 18, 2008 and has risen from 92.91 cents at the end of December. Rising prices help companies improve the terms of their debt agreements.

CommScope Inc. set pricing on a $1 billion term loan the company is seeking to help fund its acquisition by Carlyle Group, according to a person familiar with the transaction.

Covenant-Lite

The loan is covenant-lite, meaning it doesn’t have financial-maintenance requirements, the person said. The telecommunications-equipment provider will pay an interest rate 400 basis points more than Libor, said the person, who declined to be identified because the terms are private. Libor will have a 1.5 percent floor, the person said.

The Hickory, North Carolina-based company may sell the debt at 99 cents on the dollar, said the person, reducing proceeds for the borrower and boosting the yield for investors.

Investors are accepting the lowest relative yields on speculative-grade bonds in more than three years.

Spreads on junk debt shrank 16 basis points to 511 basis points, the lowest since Nov. 14, 2007, Bank of America Merrill Lynch index data show.

High-yield, high-risk loans and bonds are rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P.

In emerging markets, relative yields fell 10 basis points to 219, the third straight day of declines and the lowest level since Dec. 14, according to JPMorgan Chase & Co. index data.

Floating-Rate Notes

Borrowers issued $87.8 billion of floating-rate notes in 2010, including $8.01 billion in December, the fourth-busiest month of the year, Bloomberg data show. They sold $182 billion in 2009, including $91 billion under the Federal Deposit Insurance Corp.’s Term Liquidity Guarantee Program.

Investors deposited a record $10.4 billion into funds investing in floating-rate bonds and loans last year, including $2.1 billion in December as Treasury rates rose, according to EPFR Global, a Cambridge, Massachusetts-based firm that tracks the flows. U.S. funds accounted for $10.1 billion of the total.

“The inflows were driven by the anticipation of inflation and its deleterious impact on bonds,” said Brad Durham, managing director at EPFR. “Floating-rate fixed income is one of the only places of refuge in a rising-rate and rising- inflation environment.”

‘Best Value’

Floating-rate notes will have their “best value” next year as inflation and interest rates climb, said Mark Grant, a managing director at broker-dealer Southwest Securities Inc. in Fort Lauderdale, Florida.

MetLife, based in New York, issued $500 million of floating-rate notes due in January 2014 on Jan. 4, Bloomberg data show. BNP Paribas SA and Barclays Plc also sold the debt this week as issuance climbed to the highest since the period ended Jan. 29, 2010, when $6.53 billion was sold.

GE Capital sold $2.25 billion of floating-rate notes as part of its $6 billion offering Jan. 4, the largest in 11 months, Bloomberg data show.

Bonds from Fairfield, Connecticut-based GE were the most actively traded U.S. corporate securities by dealers, with 411 trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Fed Target Rate

Futures contracts on the Chicago Board of Trade on whether Fed policy makers will raise their target rate for overnight loans between banks by at least a quarter-percentage point by their November meeting have climbed from 30.8 percent a month ago. The Fed has held the target for its overnight lending rate at zero to 0.25 percent since December 2008.

Fed policy makers said Jan. 4 that improvements in the economy didn’t meet the threshold for scaling back plans to purchase $600 billion in Treasuries through June.

“If the Fed gets it right, floating rate supply in the second half of the year should be two times what it was in the first half of the year,” Barclays’s D’Ercole said.

Pimco boosted its forecast for U.S. growth in 2011 after President Barack Obama reached a deal with Congress to extend tax cuts and unemployment benefits. Gross domestic product may grow at an annualized rate of 3 percent to 3.5 percent in the fourth quarter, compared with an earlier estimate of 2 percent to 2.5 percent, Pimco said.

To contact the reporter on this story: Tim Catts in New York at tcatts1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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Prudential Investments Launches Q Shares for Qualified Plan Investors

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NEWARK, N.J.--(BUSINESS WIRE)-- Prudential Investments today announced the launch of its Q Share class for select mutual funds. The share class is designed to meet the emerging fee transparency needs of group retirement plans. The shares do not charge 12b-1 service fees and have minimal Transfer Agency fees, allowing plan providers and sponsors flexibility in choosing pricing structures. Prudential Investments is the mutual fund family of Prudential Financial Inc. (NYSE:PRU - News).

“As plan providers deal with the implementation of new government regulation for greater fee transparency, Prudential Investments is introducing the Q Share Class for select funds to help them fulfill that responsibility to plan participants,” said Michael Rosenberg, head of Prudential Investments’ Investment Only Defined Contribution group.

A plan’s financial intermediary and/or record keeper will have the option to offer Class Q shares for eligible funds. Plans that decide to offer these shares may convert its current holdings in another share class of a Prudential fund to the fund’s Class Q shares. Eligible plans include 401(k) and 403(b) plans, Keoghs, Profit Sharing Pension plans and Simple IRA plans among others.

“Investors should view the Q Share Class as an opportunity to have a clear accounting of the impact various fees and expenses will have on their accounts by distinguishing between recordkeeping and investment expenses,” Rosenberg added.

Prudential Investments offers mutual funds across a range of asset classes and sectors, including equity, fixed income, real estate and specialty securities. Please visit http://www.prudentialfunds.com for more information.

Prudential Financial, Inc. (NYSE:PRU - News), a financial services leader with approximately $750 billion of assets under management as of September 30, 2010, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit http://www.news.prudential.com/.

Mutual fund investing involves risk. Some mutual funds have more risk than others. The investment return and principal value will fluctuate and shares when sold may be worth more or less than the original cost. There is no assurance a Fund's objectives will be achieved. The risks associated with each fund are explained more fully in each fund's respective prospectus.

Consider a fund’s investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other information about the fund. Contact your financial professional for a prospectus and read it carefully before investing.

Mutual funds are distributed by Prudential Investment Management Services LLC, a Prudential Financial company, member SIPC.

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Torchmark Announces Closing of United Investors Life Insurance Sale

{"s" : "tmk","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""} Press Release Source: Torchmark Corporation On Friday December 31, 2010, 4:00 pm EST

MCKINNEY, Texas, Dec. 31, 2010 /PRNewswire-FirstCall/ -- Torchmark Corporation (NYSE:TMK - News) is pleased to announce that its subsidiary, Liberty National Life Insurance Company (Liberty) has closed the sale of its wholly owned subsidiary, United Investors Life Insurance Company (United Investors), to Protective Life Insurance Company for approximately $343 million, subject to post-closing adjustments. Prior to closing, approximately $305 million of assets, at fair value, were distributed from United Investors to Liberty.  The combined total of the purchase price and the pre-closing distributions to Liberty was approximately $648 million.

The sale of United Investors will provide additional free cash flow to the parent company of approximately $250 to $320 million in 2011.

Bank of America Merrill Lynch acted as financial advisor to Torchmark.

Torchmark Corporation is a holding company specializing in life and supplemental health insurance for "middle income" Americans marketed through multiple distribution channels including direct response, and exclusive and independent agencies. Torchmark has several nationally recognized insurance subsidiaries. Globe Life And Accident Company is a direct-response provider of life insurance known for its administrative efficiencies. American Income Life provides individual life insurance to labor union members. Liberty National Life is one of the oldest traditional life insurers in the Southeast. United American is a consumer-oriented provider of supplemental life and health insurance.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements within the meaning of the federal securities laws.  These prospective statements reflect management's current expectations, but are not guarantees of future performance. Accordingly, please refer to Torchmark's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the year ended December 31, 2009 and any subsequent Forms 10-Q on file with the Securities and Exchange Commission and on the Company's website at www.torchmarkcorp.com on the Investor Relations page. Torchmark specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.

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5 Things Investors Should Consider Before the Year Ends

1. Tax-loss selling

If you have a non-registered investment account with losing positions, consider selling some or or all of them to claim capital losses that can be applied against past, current or future capital gains. Taxes can be reduced significantly when taxable capital gains are offset in part or whole.

Say goodbye to the losers and plow the proceeds into better investments. Even if there aren’t any better investments, you can still sell the losing stocks and buy them back after the 30-day period required for avoiding the “superficial-loss” rule.

Don’t like the risk of buying back at a higher price? Then purchase a proxy at the time of sale. The preferred proxy will have similar price movements yet be different enough to avoid triggering the superficial-loss rule. One of the attractions of exchange-traded funds (ETFs) is that they often fit the aforementioned description. The proxy, whether it is an ETF or a stock, can be retained on a long-term basis or be replaced by the original security after 30 days have elapsed.

2. Tax-loss (and window-dressing) bargains

The period just before Christmas is when tax-loss selling tends to peak, heightening the downward pressure on out-of-favour stocks. As a result, even greater bargains may emerge among the downtrodden. That is why contrarians Benj Gallander and Ben Stadelmann of the Contra the Heard advisory say they do the bulk of their buying at this time of year. If you have a value or contrarian bent, you might consider some bargain hunting as well.

Another thing that happens at this time of year is “window-dressing” by professional money managers. This means they’ll be selling losing stocks so that their year-end financial statements won’t look so embarrassing. An example of a stock that could be impacted by this phenomenon this year is Manulife Financial (MFC).

3. Capital-gains distributions

Be wary of capital-gain distributions by mutual funds and ETFs. When funds sell stocks during the year and register capital gains, the year end is when they distribute them to be taxed in the hands of unitholders. Sometimes the dollar amounts can be significant and come as a shock to the unwary. In 2008 for example, the CDN Tech Sector Index ETF (TSX: XIT) distributed a capital gain of about 20% of the price

Investors may thus want to be alert to owning or buying funds as the year end approaches. It’s not too hard to ascertain if a fund is headed toward a capital-gains distribution. In fact, fund companies often give advance warning in news releases, on their websites or to people who call in with inquiries. In most cases, the distribution will be too small, or even non-existent, to worry about.

4. Attention ETF unitholders: don’t pay tax twice

ETF holders in taxable accounts could end up paying taxes twice if they don’t keep track of their adjusted cost bases (ACBs). Recall that when you report a capital gain to the taxman, it is calculated as the difference between the amount of money received (net of commissions) and the ACB — which is equal to the total amount paid to buy a security (less commissions/fees) + reinvested distributions – return of capital – ACB of previous sales.

Mutual funds calculate ACB for their clients. But ETFs don’t. So if unitholders forget to include it when filing their tax return with the CRA, they’ll pay tax again on the distributed capital gain.

5. RESP contributions

The annual deadline for [Canadian] RESPs comes at the end of December. Act before then if you have contributions to make.

Larry MacDonald is a former economist who manages his own portfolio and writes on investment topics for Canadian Business Online, Globe and Mail, MoneySense Magazine, Investopedia.com and other publications. He also writes a daily finance blog for Canadian Business Online (where he is more... More
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