Borrowers Pile Into US Bond Market As Yields Hit 6-Month Low

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

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