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High-grade corporate bonds weakened in Thursday trading but appetite for new-issues remained upbeat as a handful of borrowers improved pricing terms in the primary market.
Among the large new issues were a $1.4 billion two-part issue from The Walt Disney Co. (DIS) and a $1 billion deal from India energy company Reliance Industries Ltd. (500325.BY). Both priced at better levels than original guidance, with spreads on the Reliance deal tightening 20 basis points.
Companies tapping the market are funding at cheap interest rates, while investors continue to find value based on the extra yield corporate bonds offer over low-yielding Treasury bonds.
Disney offered 47 and 62 basis points over five- and 10-year Treasury rates, pricing its bonds to yield 1.324% and 2.63%, respectively.
Reliance gave investors 345 basis points over Treasurys on 10-year bonds, borrowing at 5.468%. The deal is the largest dollar-denominated deal from an Indian corporate borrower since late September, and one of only 14 such deals since 1995, according to data provider Dealogic.
"Absolute rates are attractive to the financer, and spreads are attractive to the investor," said Scott Kimball, portfolio manager at Miami-based Taplin, Canida & Habacht LLC, a unit of BMO Global Asset Management.
He said the streak of positive headlines in recent weeks has boosted comfort among issuers and buyers.
The high-grade market digested seven deals worth $11.5 billion on Wednesday, bringing February issuance up to $43.37 billion, according to Dealogic. That's more than half the $83.5 billion that hit the market last month, and compares with $60.5 billion of new-issuance in all of February 2011.
While issuance has been surging, yields have remained at historical lows.
The Barclays Capital investment-grade index hit a six-month low of 3.38% on Feb. 2, rose in the days afterwards, and returned to close there Wednesday. The all-time low going back to 1973 is 3.37%.
Trading has been relatively directionless this week, indicating some skepticism about far the rally can go; however, the spread on the Barclays index tightened 10 basis points to 194--the lowest since Aug. 12.
Smaller deals in Thursday's market included a $300 million offering of 10-year bonds from Kennametal Inc. (KMT), and a $300 million reopening of 10-year bonds from Dolphin Energy, an Abu-Dhabi company majority-owned by state-run investment firm Mubadala.
The Dolphin Energy deal is a reopening of a $1 billion deal offered to investors Tuesday. The company liked the cheap rates and didn't hesitant to borrow more at similar terms. A banker away from the deal called the reopening "a testament to how strong the market is right now."
Other deals that priced Thursday included a $250 million reopening of 7.375% perpetual notes from Brazilian petrochemicals company Braskem SA (BAK, BRKM5.BR), and a $200 million two-year floating-rate deal from Banco Santander Chile.
The Braskem bonds garnered $1.86 billion of orders, marking incredible demand for the dollar-denominated deal. Asian investors made up about 48% of the allocation, while Europe represented about 28%, with the rest going to U.S. investors, Dow Jones reported earlier Thursday.
The average new-issue in the last four weeks has garnered five times the needed bids, or orders from investors, to get it done, according to Standard and Poor's LCD. That's the highest average since the last summer.
Markit's CDX North America Investment-Grade Index was flat for most of the day but deteriorated 2.4% in the late afternoon. It now stands at 96.9 basis points--still among the best levels since July.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382; firstname.lastname@example.org