Top-Quality Corporate Bonds Find Wide Reception Thursday

Date : 07/26/2012 @ 6:21PM
Source : Dow Jones News
Stock : Fedex Corp. (FDX)
Quote : 220.0  1.17 (0.53%) @ 4:00PM

Top-Quality Corporate Bonds Find Wide Reception Thursday

Bristol Myers Sqibb (NYSE:BMY)
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--Demand for high-quality bonds pushes bond yields lower

--Bristol-Myers Squibb attains record-low coupons for five-, 30-year bonds

--Secondary market rallies with 30-year bonds leading

 
   By Patrick McGee 
 

Corporate-bond investors rushed to purchase bonds from top-quality companies Thursday, enabling Bristol-Myers Squibb Co. (BMY) to attain the lowest borrowing costs on record for five- and 30-year bonds as part of a $2 billion bond sale.

National Australia Bank Ltd. (NAB.AU, NABZY) and New Zealand's ANZ National, each boasting double-A ratings, offered a combined $2.5 billion of three-year debt.

In all three deals, yields fell from earlier price guidance, indicating strong demand as secondary markets rallied in the backdrop. Markit's CDX North America Investment-Grade Index, a proxy for risk sentiment, improved 3.7% in late trading.

Mary P. Talbutt-Glassberg, fixed-income portfolio manager at Davidson Trust Co., said the recent downgrades on global banks have caused the average quality in client portfolios to slide, so she needs more double-A-rated issuers to come to market to help rebalance.

"The entire market is experiencing the same situation," Ms. Talbutt-Glassberg said.

She added many investment-grade managers must maintain double-A average ratings, but choices are limited and they are being pushed into agency, municipal and Treasury debt.

The Bristol-Myers deal received $14 billion of investor orders from nearly 350 accounts world-wide, according to David Trahan, head of investment-grade syndicate at Citigroup, the only underwriter to work on all three tranches of the deal.

The massive demand helped the global biopharmaceutical company, rated in the single-A range, to sell $500 million of 30-year bonds with a 3.25% coupon--the lowest ever, according to Dealogic records going back to 1995. The prior record was 3.60%, set earlier this month by Monsanto Co. (MON).

Bristol-Myers sold $750 million of five-year bonds bearing a coupon of 0.875%, another record low, and $750 million of 10-year debt with a 2% coupon, tying the second-lowest rate on record.

Bristol-Myers has only sold debt in the U.S. twice since 2006, according to Dealogic. In its most recent offering in April 2008, it sold $1 billion of 30-year bonds with a coupon of 6.125%, or 2.875 percentage point higher than Thursday's offering.

The dearth of double-A-rated issuance likely helped ANZ Bank cut yields on its $750 million offering of three-year notes. It sold bonds at a yield of 1.872%, or 1.58 percentage points more than Treasurys. Spreads in initial price guidance were as high as 1.70 points.

National Australia Bank only cut yields by two basis points on its three-year offering, but it added a floating-rate tranche to soak up demand. It sold $1.25 billion of fixed-rate notes at 1.622%, or 1.33 percentage points over Treasurys, plus $500 million of floaters at 1.13 points over the London interbank offered rate.

In the secondary market, bond investors responded to the broad rally by going long, as more are persuaded low interest rates are here to stay.

Spreads on Morgan Stanley (MS) 30-year debt compressed 0.35 percentage point to 3.90, while Bank of America Corp. (BAC) spreads declined 0.11 point to 2.37, per MarketAxess.

Long-dated bank paper has excelled in 2012, delivering a total return of 16.7% as of Wednesday, Barclays shows. Total return combines capital appreciation with coupon payments.

Long industrial bonds are also outperforming: 30-year spreads Thursday fell 0.12 percentage point on Nexen Inc. (NXY.T, NXY), 0.08 point on FedEx Corp. (FDX), and 0.09 point on Time Warner Inc. (TWX).

Write to Patrick McGee at patrick.mcgee@dowjones.com

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