Fed report puts corporate bond market at $10.8 trillion in first quarter, issuance at $299.8 billion

By Angela McDaniels

Tacoma, Wash., June 5 - The total amount corporate and foreign bonds outstanding at the end of the first quarter was $10.8 trillion, according to a flow and outstandings report release by the Federal Reserve on Thursday.

The figure is slightly more than the $10.71 trillion outstanding at the end of 2007 and 8% higher than the $10 trillion recorded for the first quarter of 2007.

Of the $10.8 trillion outstanding in the first quarter, more than half- $5.88 trillion - was issued by the financial sector, including $3.56 trillion from asset-backed securities issuers. Non-financial corporate businesses issued roughly a third of the bonds at $3.59 trillion, and issues from the rest of the world - defined as holdings of foreign issues by U.S. residents - totaled $1.33 trillion.

Finance companies, commercial banking, funding corporations, real estate investment trusts, brokers and dealers, and savings institutions rounded out the list of issuers with less than $1 trillion of issuance each.

On the buy side, the largest segment was the rest of the world with $2.53 trillion of bonds held. Life insurance companies came in second with $1.91 trillion, followed by the household sector with $1.53 trillion and by commercial banking and mutual funds with $1 trillion each.

Those five sectors were also the top five holders of securities in the first quarter of 2007 and in 2006.

Nonfinancial sectors recorded $274.8 billion of credit market borrowing in the fourth quarter on an annualized basis and $314.1 billion for the full year in 2007. Those figures were negative $14.8 billion and $507.4 billion, respectively, for the financial sectors.

Flow reaches nearly $300 billion

The corporate and foreign bonds market recorded $299.8 billion of net issues on a seasonally adjusted annual basis in the first quarter of 2008, according to the report.

By far the largest issuer was the nonfinancial corporate business segment with $274.8 billion of annualized net issues, followed by commercial banking with $140.7 billion, brokers and dealers with $62.3 billion, finance companies with $42 billion and the rest of the world with $39.8 billion.

Three sectors posted an annualized net decrease in issues: REITs with negative $69.1 billion, funding corporations with negative $28.7 billion and the financial sectors with negative $14.8 billion.

The decrease was a departure for the financial sectors segment, which posted positive figures in each of the other periods included in the report going back to 2002. The segment had $274.6 billion of net issues in the fourth quarter of 2007 on an annualized basis and $507.4 billion in 2007.

Much of the decline was due to a $163.3 billion annualized decrease from asset-backed securities issuers. The sector showed a positive $168.6 billion annualized figure for the fourth quarter of 2007 and a positive $766.3 billion annualized figure for the third quarter of 2007.

For the full-year 2007, net issues totaled $964.4 billion, a 16.8% decrease from 2006 when $1.16 trillion of net issues were recorded.

The largest issuer in 2007 was the financial sectors segment with $507.4 billion, followed by non-financial corporate businesses with $314.1 billion and the rest of the world with $142.9 billion.

These were also the largest issuers in 2006, but non-financial corporate was the only one to show a year-over-year increase: it posted $213.4 billion of net issues in 2006 compared with its $314.1 billion figure for 2007. The financial sectors and the rest of the world had net issues of $795 billion and $150.9 billion in 2006, respectively.

For 2007, no sector recorded a decline in net issues.

On the buy side, the largest purchaser of the notes in the first quarter was the funding corporations segment with $338.9 billion of annualized net purchases. Rounding out the top five were mutual funds with $115.9 billion, money market mutual funds with $114.0 billion, the rest of the world with $112.4 billion and commercial banking with $97.4 billion.

The net purchases of the household sector fell significantly to negative $476.6 billion in the first quarter on an annualized basis from $523 billion in the fourth quarter. Also posting a net decrease in purchases were brokers and dealers with negative $80.4 billion, government-sponsored enterprises with negative $58.8 billion and REITS with negative $37.9 billion, among others.

For the full-year 2007, the largest purchasers were the rest of the world with $296.3 billion of net purchases, commercial banking with $198.4 billion, mutual funds with $159 billion, funding corporations with $109.6 billion and the household sector with $85.3 billion.

Four sectors showed a decrease in net purchases in 2007: REITs with negative $43.6 billion, government-sponsored enterprises with negative $18.4 billion, state and local government retirement funds with negative $8.1 billion and closed-end funds with a slight decrease at negative $0.5 billion.

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