Borrowers Pile Into US Bond Market As Yields Hit 6-Month Low
May 17 2011 - 4:42PM
Dow Jones News
Corporate borrowers offered more than $11 billion of
investment-grade debt for sale Tuesday, taking advantage of
interest rates at six-month lows to pay for takeovers or refinance
old debts.
Foreign and domestic companies--including Johnson & Johnson
(JNJ), Caterpillar Inc. (CAT), McDonald's Corp. (MCD) and HSBC
Holdings PLC (HBC)--crowded into the market, where they found
plenty of eager buyers. Yields on investment-grade bonds average
3.765%, the lowest rate since Nov. 12, according to the Bank of
America Merrill Lynch index.
Borrowing costs have fallen even as supply has soared. Including
a $3 billion deal Monday from Google Inc. (GOOG)--its first bond
ever--more than $20 billion of high-grade corporate debt was sold
in the first two days of the week, almost matching the total for
all of last week.
"Investment-grade financing costs are close to all-time lows,
making it a very attractive time for firms to issue financing even
if they don't have an immediate need for cash," said Guy LeBas,
director of fixed-income strategy at Janney Montgomery Scott LLC in
Philadelphia.
"This low rate window is unlikely to last given economic
fundamentals," LeBas added, citing forecasts that Treasury yields
are headed up by year end, "so it makes sense to issue now rather
than wait."
A revival of mergers and acquisitions also is encouraging
companies to borrow, market participants said, as is a desire to
push out maturities, or delay the day when companies must return
borrowed money to investors.
Johnson & Johnson took the lead Tuesday, selling $3.75
billion of debt, its largest bond offering ever. This sale was
split among two-, three-, five-, 10- and 30-year maturities. Its
largest previous offering, for $2.6 billion, was in August
2007.
Anthony Valeri, strategist at LPL Financial in San Diego, said
the Johnson & Johnson deal was "a combination of an
opportunistic outreach and extending maturities." He added that a
common theme in corporate issuance over the past few months has
involved locking in low rates while repaying short-term debts
called commercial paper obligations.
Others selling Tuesday included Total SA's (TOT, FP.FR) Total
Capital Canada with a $1 billion two-year floating-rate offering,
Eksportfinans of Norway with a $1 billion five-year global
offering, and two borrowers--financial firm Rabobank Nederland and
mining company Rio Tinto PLC's (RIO, RIO.LN, RIO.AU) Rio Tinto
Finance--offering "benchmark-sized" deals. Such deals are usually
at least $500 million in size, but may be larger if there is
sufficient buyer demand.
Aetna Inc. (AET), McDonald's, Caterpillar and HSBC rounded out
Tuesday's issuers.
Seven blue-chip borrowers sold more than $9 billion of bonds
Monday, according to data provider Dealogic. The biggest deal was a
$3.5 billion offering from Texas Instruments Inc. (TXN), its first
bond since the third quarter of 1999. TI said it would use the
proceeds to pay for its acquisition of National Semiconductor Corp.
(NSM).
Investors remarked not only on the volume of bonds being sold,
but the quality of the companies selling them.
"J&J is arguably one of the best credits around, and better
than most government credits," said Larry Glazer, a portfolio
manager at Mayflower Advisors in Boston. He said his firm didn't
buy this issue, but has other investments in the company.
-By Mark Stein, Dow Jones Newswires; 212-416-2213;
mark.stein@dowjones.com
Texas Instruments (NASDAQ:TXN)
Historical Stock Chart
From Jun 2024 to Jul 2024
Texas Instruments (NASDAQ:TXN)
Historical Stock Chart
From Jul 2023 to Jul 2024