Deutsche Telekom AG (DTE), Germany’s biggest phone company, and China Petrochemical Corp. (386) led $21 billion of U.S. corporate bond sales this week, the second straight period below the 2013 average, as the partial government shutdown sidelined issuers.
Deutsche Telekom sold $5.6 billion in notes of its T-Mobile USA Inc. (TMUS:US) unit while China Petroleum, known as the Beijing-based Sinopec Group, issued $2.75 billion, according to data compiled by Bloomberg. While sales rose from $11.9 billion last week, offerings compare with this year’s weekly average of $30 billion.
President Barack Obama and House Republican leaders remain at odds over terms even as they move toward an agreement to extend the nation’s borrowing authority that might postpone a potential U.S. default. Treasury Secretary Jacob J. Lew warned yesterday that the congressional deadlock over the U.S. debt limit was starting to stress financial markets and a default would lead to serious repercussions.
“The U.S. government shutdown has had a marked impact on equities and new issuance,” Robert Smalley, the Stamford, Connecticut-based head of the investment-grade and leveraged finance credit analyst group at UBS AG, wrote in an Oct. 9 report on financial bonds. “Fixed-income investors remain generally cautious as the new-issue calendar has ground to a halt.”
The extra yield investors demand to own corporate bonds rather than government debentures narrowed to 218 basis points yesterday from 222 basis points on Oct. 4, according to Bank of America Merrill Lynch index data. Yields were little changed at 4.09 percent, and compare with a record low of 3.35 percent on May 2.
Borrowing rates remain below a 15-month high of 4.37 percent in September amid speculation that Janet Yellen, nominated this week by President Barack Obama to lead the Federal Reserve, will keep interest rates at a record low to spur the economy.
Obama and House Republicans met for 90 minutes at the White House yesterday in the first sign that the parties might resolve the fiscal impasse without negative economic consequences from a default as the halt in government operations moved into its 11th day.
Deutsche Telekom sold T-Mobile debt in five parts maturing between 2019 and 2023 after the offering was boosted from an initial $3.1 billion. The $1.25 billion of 6.542 percent notes due 2020, sold at a relative yield of 460 basis points, traded at 103.5 cents on the dollar to yield 5.89 percent at 9:54 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Sinopec, Asia’s biggest refiner, issued debt in three parts with the largest portion, $1.5 billion of 4.375 percent, 10-year securities, trading at 99.15 cents on the dollar to yield 4.48 percent at 10:13 a.m., Trace data show.
Sales of investment-grade debentures reached at least $11.4 billion, compared with $10.6 billion last week and a 2013 weekly average of $22.7 billion, Bloomberg data show. Offerings of speculative-grade bonds reached at least $9.4 billion, compared with $1.3 billion last week and an average this year of $7.3 billion.
High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
Issuers planning sales include Neiman Marcus Group offering $1.56 billion of eight-year notes, including securities that allow it to pay interest with extra debt, according to a filing by the Dallas-based company.
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