US Investment-Grade Bond Issuance Picks Up As Sentiment Rises

A variety of companies sold investment-grade bonds Tuesday, a promising start to a short week and possibly a sign that issuance could pick up in the early weeks of the third quarter.

A construction-materials giant, a large retailer and an electrical utility came to market. And although none had deals larger than $500 million, the activity was nonetheless "an encouraging sign that people were willing to come into the market on a Tuesday after a long weekend," said Peter Aherne, managing director and head of capital markets and syndicate at Citigroup.

New bond issues slowed last week amid a dreary series of reports that cast doubt on the strength of the U.S. economic recovery and borrowers were held captive last week by market volatility. Friday's payrolls report showed the U.S. economy lost 125,000 jobs in June, the first monthly decline of the year, and punctuated a weak private-sector jobs-growth figure and a spike in jobless claims.

High-grade companies sold just $6.06 billion worth of notes, the lowest weekly total since the end of May, according to Dealogic. The anemic volume ended two weeks of robust bond sales in which $19.15 billion and $15.05 billion worth of high-grade supply came to market.

Issuers were likely coaxed to market Tuesday by early gains in the stock market, Aherne said, and they were well received.

Duke Energy Indiana Inc., a unit of Duke Energy Inc. (DUK), sold $500 million in 10-year 3.75% notes at a discount to yield 3.761%, or 80 basis points over comparable Treasurys.

Retail grocery chain Kroger Co. (KR) sold $300 million in 30-year 5.4% bonds at a discount to yield 5.460%, or 155 basis points over comparable Treasurys. Demand was strong enough to let Kroger increase the size of the deal by 20% from $250 million as the day progressed.

French cement maker Lafarge SA (LFRGY, LG.FR) was selling $350 million in five-year senior unsecured notes in the private placement Rule 144A market. Initial price guidance suggested that the bonds would sell at around 375 basis points over comparable Treasurys, according to a syndicate banker familiar with the issue.

Hillenbrand Inc. (HI), holding company for Batesville Casket Co., will sell $150 million in 10-year notes to help repay debt incurred from the company's acquisition of K-Tron International Inc. (KTII).

Aherne said he expected July to be busy in terms of high-grade issuance, but that the month will likely see more issues after companies post second-quarter earnings.

-By Christopher Dieterich, Dow Jones Newswires; 212-416-2611; christopher.dieterich@dowjones.com

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