Bloomberg News

High-Grade Company Bond Sales to ‘Heat Up’ Next Month, BofA Says

August 30, 2011

Aug. 30 (Bloomberg) -- U.S. investment-grade company bond sales are set to “heat up” in September to $80 billion as offerings this month show strong demand for the securities and as yields are at about record lows, according to Bank of America Corp.

Issuance of $42 billion in August was dominated by industrial issuers graded A and AA, which accounted for 55 percent of offerings, the highest proportion since at least 2009, Bank of America Merrill Lynch Global Research strategists Hans Mikkelsen and Yuriy Shchuchinov wrote in an Aug. 29 note.

“This highlights that investor demand for corporate bonds remains strong despite record low all-in yields and economic weakness,” the strategists wrote. “For September we expect a significant increase in high grade new issuance volumes to $80 billion, as issuers are tempted by current very low corporate yields and there continues to be strong demand.”

Investors are seeking less risky assets as the U.S. economy shows signs of slowing, the unemployment rate holds above 9 percent and consumer confidence plunges to the lowest in more than two years. Average yields on investment-grade debt have tumbled this year to 3.8 percent as of yesterday. Even if it’s low, positive economic growth “is very favorable for corporate bonds,” especially as investors lack higher-yielding alternatives, creating a “Goldilocks” environment for the securities, Mikkelsen wrote.

The benchmark U.S. 10-year Treasury note’s yield dipped below 2 percent earlier this month to a record low.

Low Growth Environment

As the private sector reduces debt, corporate bonds are “the only asset class that offers both yield and meaningful amounts of supply,” he wrote. “Under present conditions, a low growth environment is ‘just right’ and leads to excess demand for corporate bonds and tighter credit spreads.”

While high-grade issuers tap the market, sales of speculative-grade debt, rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, have tumbled to $1.03 billion this month from $18 billion in July, according to data compiled by Bloomberg. That’s the lowest since December 2008, the data show.

Yields on investment-grade corporate bonds have fallen from as high as 4.29 percent in February, according to Bank of America Merrill Lynch index data. Relative yields on the debt of 227 basis points compare with 166 basis points at the start of the year.

--Editors: John Parry, Pierre Paulden

To contact the reporter on this story: Sapna Maheshwari in New York at

To contact the editor responsible for this story: Alan Goldstein at

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