Goldman Sells $2 bln in Notes Not Govt-Guaranteed

Goldman Sachs Group Wednesday sold $2 billion of notes not backed by a government guarantee in a sign of an incipient thaw in credit markets, analysts said.

"That's a good sign for the banking sector," said William Larkin, portfolio manager with Cabot Money Management in Boston. Both Goldman and JPMorgan are starting to issue bonds that are not backed by the U.S. government after a virtual drought of such issues, he added.

Even so, with investors still wary about the fragile banking system, it is much more expensive for banks to issue debt outside the umbrella of government protection.

Goldman sold the five-year, dollar-denominated global issue at about 410 basis points over comparable government Treasury yields, according to IFR, a Thomson Reuters service. That was broadly in line with initial price talk earlier Wednesday of 412.5 basis points over Treasuries, IFR said.

Soon after the issue was priced, it was trading about 30 basis points tighter, or about 380 basis points over equivalent Treasuries, said Bob Gorham, managing director and head of investment-grade bond trading at Broadpoint Capital in New York. Gorham said demand was quite brisk for new corporate bond issues on Wednesday as the market's tone firmed.

An uptick in new debt sales after a two-week lull for earnings season is also lending support to the strong sentiment in the market, analysts said.

However, Goldman had to offer investors much higher compensation for the risk of holding its stand-alone debt by selling the Wednesday issue for much higher yields than its government-backed notes.

Goldman's FDIC-backed notes maturing in December 2012 were trading at a spread of about 47 basis points over equivalent Treasuries according to Tradeweb data, compared with about 410 basis points for the bank's Wednesday issue when it was first sold.

Since the panic in the financial markets in the fourth quarter of 2008, investors have generally shunned U.S. bank bonds that are not backed by government regulator the Federal Deposit Insurance Corp.

Goldman's five-year senior global notes were the bank's first issue since January that were not backed by the government.

On April 16, JPMorgan made a stand-alone issue, selling $3 billion in debt without U.S. government backing for the first time since August.

Goldman's issue represents the latest inroad into a sector of the corporate bond market that investors have mostly avoided for months, hinting the market for this type of debt is starting to open up again, analysts said.

However, bond investors generally view Goldman and JPMorgan as among the strongest major U.S. banks.

Both have signaled they now have the resources to repay bailout funds which the government injected into the banking system late last year to save it from implosion. (Additional reporting by Tom Ryan, Caryn Trokie and Dan Wilchins in New York and Natalie Harrison in London; Editing by James Dalgleish)