Bloomberg News

Bond Sales Double in U.S. With Spreads at Tightest in 17 Months

October 19, 2012

Sales of corporate bonds in the U.S. doubled this week as relative yields narrowed to the tightest level in more than 17 months.

Xstrata Plc (XTA), the world’s largest exporter of coal burned by power stations, and New York-based JPMorgan Chase & Co. (JPM:US) led at least $39.4 billion of new issues following $19.6 billion in the period ended Oct. 12, according to data compiled by Bloomberg. Sales compare with a 2012 weekly average of $27.8 billion

Borrowing costs on dollar-denominated bonds from the riskiest to the most creditworthy borrowers are hovering at record lows, with average yields reaching 3.6 percent yesterday, Bank of America Merrill Lynch index data show. Companies are issuing debt as opportunities on the calendar free from election- and holiday-related disruptions diminish before year- end, according BNP Paribas SA’s Simon Mayes.

“There’s not that many weeks left where the market could be fully operational and absolutely in full swing,” Mayes, head of the financial institutions group syndicate in New York, said in a telephone interview. “Not to say deals won’t get done, but if you want to give yourself the best chance, then it’s probably the weeks between now and the week prior to the U.S. elections.”

JPMorgan Bonds

The extra yield investors demand to own corporate bonds rather than government debentures decreased 14 basis points this week to 222 basis points, the least since April 30, 2011, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master index. Yields reached an unprecedented 3.591 percent on Oct. 16.

Sales of investment-grade debentures reached at least $29.5 billion, compared with $12.3 billion last week and a 2012 weekly average of $21.3 billion, Bloomberg data show.

JPMorgan, the biggest U.S. bank, sold $2.85 billion of three-year bonds in two parts, including fixed-rate notes with its record-low coupon for a benchmark offering.

The lender issued $2.25 billion of securities due October 2015, with an unprecedented low rate of 1.1 percent for three- year debt, that yielded 77 basis points more than similar- maturity Treasuries and $600 million of three-year, floating- rate securities to yield 66 basis points more than the three- month London interbank offered rate, Bloomberg data show.

Yields on investment-grade debt rose to 2.795 percent yesterday from 2.785 percent on Oct. 12, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Spreads decreased 12 basis points to 146 basis points.

Xstrata, HCA

Xstrata, the target of a takeover bid by Glencore International Plc, issued $1.25 billion of 1.8 percent, three- year notes to yield 140 basis points more than similar-maturity Treasuries; $1.75 billion of 2.45 percent, five-year debt at a spread of 170 basis points; $1 billion of 4 percent, 10-year securities at 220 basis points and $500 million of 5.3 percent, 30-year debentures at 235 basis points, Bloomberg data show.

Offerings of speculative-grade bonds reached at least $9.9 billion, compared with $7.3 billion last week and a 2012 weekly average of $6.5 billion, Bloomberg data show.

HCA Holdings Inc. (HCA:US), the biggest U.S. for-profit hospital operator, issued $1.25 billion each of 4.75 percent senior secured notes to yield 304 basis points more than similar- maturity Treasuries and 5.875 percent, senior unsecured debt at a relative yield of 417 basis points, Bloomberg data show. Proceeds were used in part by the Nashville, Tennessee-based company to fund a shareholder dividend.

‘Equity-Friendly Measures’

“Funding is so cheap and companies are trying to be creative with what they can do with it,” Anthony Valeri, market strategist at LPL Financial in San Diego, said in a telephone interview. “Not only to refi, but to take some equity-friendly measures and maybe acquisitions.”

Yields on junk debt, rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s, fell to an unprecedented 6.843 percent yesterday from 7.033 percent on Oct. 12, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Spreads decreased 32 basis points to 524 basis points.

Issuers planning offerings include Shearer’s Foods LLC with a $210 million seven-year issue and Ecolab Inc. selling $750 million of five-year debt.

To contact the reporter on this story: Sarika Gangar in New York at sgangar@bloomberg.net

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


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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $59.59 USD
    • -0.15
    • -0.25%
  • HCA
    (HCA Holdings Inc)
    • $69.25 USD
    • -0.02
    • -0.03%
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