Home' Trinidad and Tobago Guardian : September 19th 2013 Contents BG28 | THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt SEPTEMBER 2013 • WEEK THREE
The biggest corporate-bond issue ever was
completed this week. Verizon Communications,
one of America s biggest telecommunications
groups, issued a whopping US$49 billion of
bonds in order to finance the buyout of Voda-
fone s stake in its wireless operations. That
shattered the previous record, Apple s paltry
US$17 billion issue earlier this year.
The scale of Verizon s offering may be
unprecedented, but its foray into the bond
markets is anything but. In the first eight
months of this year, US$1.4 trillion of corporate
bonds were issued worldwide, according to
Dealogic, a data provider, compared with
US$1.3 trillion in the same period of 2012.
Firms have been keen to lock in long-term
financing at low yields, particularly since bor-
rowing costs started rising after the Federal
Reserve hinted in May at slowing its asset
Oil and gas companies have been particularly
enthusiastic issuers, according to Marcus Hise-
man of Morgan Stanley, especially in the "Yan-
kee" market in which foreign businesses sell
bonds, priced in dollars, mainly to American
Previously many foreign firms would issue
debt in euros and swap the proceeds into dol-
lars, but regulatory restrictions on banks make
that much more expensive these days. This
year 72 per cent of investment-grade issuance
has been in dollars, compared with 58 per cent
in 2009, according to Morgan Stanley.
If companies fear that bond yields are set
to rise, meaning that bond prices will fall, why
are investors so keen to buy? There was plenty
of demand to absorb the Verizon issue, for
instance: Orders reportedly reached US$100
One reason is that corporate bonds offer a
spread, or excess interest rate, over government
bonds that is still attractive in historical terms.
The average yield on ten-year investment-
grade debt is 3.5 per cent, compared with only
2.95 per cent on Treasury bonds of the same
The sheer size of the Verizon issue required
it to be more generous toward investors, as
did its BBB+ rating from Standard & Poor s,
toward the bottom end of the investment-
grade category. The firm offered a yield of
more than five per cent on its ten-year bonds,
for example, more than two percentage points
above the equivalent Treasury issue.
Many central banks, which hold a large part
of their reserves in dollars, remain enthusiastic
buyers of corporate debt.
In addition, Paul Young of Citigroup points
out that many investors in corporate debt are
specialist fund managers who aim to beat the
benchmark specific to their asset class. They
care more about whether they pick the right
bonds, as they are able to hedge the underlying
The influx of money nonetheless causes
some to worry. The corporate-bond market
is much less liquid than it used to be, thanks
largely to the effect of regulations on the will-
ingness of banks to hold large inventories of
corporate debt. This could cause a problem,
should bond investors want to sell their hold-
ings in a rush.
For the moment, however, that does not
seem likely. Corporate balance sheets look
strong, and the default rate for the past 12
months, even on speculative debt, was only
2.9 per cent, according to the ratings agency
@2013 Economist Newspaper Ltd. (Distributed
by the New York Times Syndicate.)
There was plenty of red meat thrown to the 5,000 delegates
at this week s AFL-CIO convention in Los Angeles. Speakers
proclaimed class war, bashed corporations and trade deals,
and demanded fresh taxes on the rich. One, to much cheering,
threatened to punch the conservative Koch brothers in the
America s largest trade-union grouping, with 57 affiliated
unions and 12 million members, convenes only once every
four years. Such jamborees are an opportunity to let off steam.
This year, however, there was furrowed-brow introspection
mixed with the tub-thumping. Richard Trumka, president
of the AFL-CIO, said that the labour movement was in "crisis"
and urged delegates to avoid the temptation of blaming out-
It is a fair description. In the 1950s one-third of America s
workers belonged to a union. Today only 11.3 per cent do,
including only 6.6 per cent in the private sector, where the
AFL-CIO s members are concentrated.
The reasons are well rehearsed: globalization and techno-
logical change, a toughening of anti-union politics and the
growth of the service sector, in which workers are harder to
organize. Unions have been slow to accept that the old model
no longer works, however. There has been the odd innovation:
The United Auto Workers is forming a German-style workers
council at a Volkswagen plant in Tennessee, for example.
Nonetheless, union attempts to extend their reach in sectors
such as hospitality and retail have generated more excitement
than new members.
Thus the need for a new approach. The convention show-
piece was a resolution designed to deepen the AFL-CIO s
ties with what Trumka calls "solidarity partners." This means,
first, groups that aim to organise workers outside the traditional
collective-bargaining model, particularly in low-paid service
sectors, and second, ideological allies such as ethnic- minority
lobbying groups. One official spoke of creating "a labour
movement that speaks for all workers, whether or not you
have a card in your pocket."
This was not uncontroversial. The resolution s language
was reportedly softened after some AFL-CIO unions fretted
about creating a "membership-lite." However, as AFL-CIO
general counsel Craig Becker says, "Affiliation may not be as
prized on the outside as it is on the inside."
The group, he adds, will take an experimental approach to
its new partnerships, not necessarily seeking to extend mem-
bership to everyone. To assuage worried unions, a "clear dis-
tinction" will remain between collective bargaining and other
The AFL-CIO s move, says Lowell Turner of Cornell Uni-
versity s School of Industrial and Labor Relations in Ithaca,
NY, merely reflects broader changes in the labor movement
during the past 20 years. As traditional unions have floundered,
so-called "alt-labour" groups, which agitate for workers
rights in non-unionised sectors, have stepped in. In 2003 the
AFL-CIO created its own arm for non-union workers, Working
America, through which much of its new activity will be
Demonstrations and strikes at Wal-Mart and, most recently,
at a string of fast-food chains have won publicity and spread
the idea of workplace organisation, even if results have been
thin. The AFL-CIO hopes to tap this energy and, where
appropriate, lend it institutional clout.
How might such alliances work? The success of Los Angeles
Alliance for a New Economy, an advocacy group, provides a
clue. LAANE has worked with the Teamsters, a large union
not affiliated with the AFL-CIO, to clean up truck emissions
at ports and improve the conditions of sanitation workers.
The union even has changed its position on oil-drilling in
"This way of working is new for our union partners," LAANE
director Roxana Tynan says, "but it yields real results."
The decision to strengthen ties with non-labour groups
raises different questions. Some unionists already think that
the AFL-CIO spends too much time and money lobbying for
political change and not enough fighting for workers. According
to the Centre for Public Integrity, a watchdog, unions gave
US$10 million to "super-PACs" in the first six months of this
year, almost six times as much as in the same period in 2011.
Politics cannot be cleanly distinguished from workers
rights, Becker says, although he acknowledges room for debate
over the "breadth" of political concerns. He expects to see
more union energies exerted on filibuster reform and voter-
registration laws, among other things. The AFL-CIO also has
been one of the loudest backers of the immigration-reform
legislation languishing in Congress.
The union movement is still battling strong headwinds.
The trends behind the long-term decline in membership have
not abated, according to Barry Hirsch, a labor economist at
Georgia State University in Atlanta. Attrition alone could eat
further into the numbers: The unionisation rate of workers
between 16 and 24 is less than a third that of 55-to-64-year-
"There is a realism about the enterprise," Becker says. "We d
just like to see the slope level off."
Perhaps most worrying for the movement, even public-
sector unions, whose membership has remained stable for
30 years, are in trouble in some places.
Last year in Wisconsin unions rallied to recall Governor
Scott Walker, a Republican, after he limited collective-bargaining
rights. They failed, however, and public-sector union mem-
bership fell by a quarter in a single year. Backers of "right-
to-work" laws, under which workers in unionised sectors are
not obliged to pay dues, have begun to make inroads in the
Public-sector unions remain strong, rich and powerful in
California and in the northeast, but overall membership dipped
slightly last year. Michael Hicks of Ball State University in
Muncie, Indiana, expects pension pressures to lead to further
decline. Many will cheer if that happens. Public-sector unions
often have been among the most obstructionist forces in local
Still, with wages stagnant and income inequality rising,
unionists think that Americans have become more receptive
to their message. The right tactics, they hope, at least can
arrest their decline.
Not a lofty goal, but perhaps a realistic one.
@2013 Economist Newspaper Ltd. (Distributed by the New York
At last, the union movement looks to innovation
Verizon's big number
Debt crisis? What debt crisis?
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