McKesson Corp. (MCK:US) and Gilead Sciences Inc. (GILD:US) led the second-busiest week on record for U.S. bond sales as borrowers locked in the lowest relative yields in about seven years with markets stabilizing following turmoil in Ukraine.
McKesson, the largest U.S. drug distributor, raised $4.1 billion in a five-part sale and Foster City, California-based Gilead issued $4 billion as they led offerings of $61.4 billion, according to data compiled by Bloomberg. Sales were the busiest ever behind $91.2 billion in the five days ended Sept. 13.
Offerings increased to the most since Verizon Communications Inc. issued a record $49 billion as investors gravitated to safer assets amid the worst standoff between Russia and the West since the end of the Cold War. The extra yield investors demand to hold corporate bonds relative to government securities narrowed to the lowest level since the beginning of the financial crisis amid speculation tension in Ukraine wouldn’t worsen into a wider conflict.
“Financial conditions remain very conducive to bond issuance and were perhaps made even more attractive by the Ukraine crisis,” Edward Marrinan, a macro credit strategist at RBS Securities, said in a telephone interview from Stamford, Connecticut. Falling Treasury yields “opened a window that created very attractive borrowing opportunities for many companies who were coming out of blackouts.”
The extra yield investors demand to own corporate bonds rather than government debentures narrowed to 177 basis points yesterday, the lowest since July 2007, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index. Yields increased to 3.81 percent from 3.76 percent on Feb. 28, within 50 basis points of their all-time lows.
“Issuance costs are low for corporates that need or want the cash,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “There’s some opportunistic aspects to the increase in issuance.”
McKesson sold bonds for the first time in a year, issuing debt ranging in maturity from 18 months to 30 years, Bloomberg data show. The pharmaceuticals distributor issued $1.1 billion of 3.796 percent, 10-year notes to yield 110 basis points more than similar-maturity Treasuries.
Gilead, the world’s largest maker of HIV medicines, offered its first bonds since December 2011 with a three-part issue, Bloomberg data show. The sale included $1.75 billion each of 3.7 percent, 10-year bonds with a relative yield of 102 basis points and 4.8 percent, 30-year securities at a 117 basis-point spread, the data show. Proceeds will be used for debt repayment and other general corporate purposes.
Sales of investment-grade debentures reached at least $51.3 billion, compared with $32.1 billion last week and the third-busiest week ever, Bloomberg data show. Offerings of speculative-grade bonds reached at least $10.1 billion, compared with $2.3 billion last week and the most since $11.3 billion in the five days ended Jan. 17.
High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
“This return to relative calm has allowed the primary market to fully open,” analysts led by Hans Mikkelsen at Bank of America Corp. wrote in a March 5 report. “The underlying pace of supply has remained very robust so far in March as issuers come out of blackout and continue to take advantage of the favorable market conditions.”
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