2nd UPDATE: Heavy Corporate Bond Supply As Investors Crave Yield

Another robust round of corporate bond sales were on tap Tuesday, following the fresh $12 billion in new issues sold a day earlier. As the economy continues to improve, companies are keen to take advantage of still-low borrowing costs and investors are all too happy to pick up investments offering higher yields than other securities.

Swiss pharmaceutical giant Novartis AG (NVS) said it would offer $4 billion of senior notes with proceeds earmarked for general corporate purposes and to finance its acquisition of a 52% stake in eye-care products maker Alcon from Nestle SA (NSRGY, NESN.VX), according to the deal's prospectus.

Preliminary price guidance suggests a risk premium of 57 basis points over Treasurys for the three-year piece, 67 basis points for the five-year tranche and 80 basis points for the 10-year maturity. Novartis' 5.125% due 2019 recently traded at 67 basis points over Treasurys, according to MarketAxess.

Novartis Securities Investment Ltd. and Novartis Capital Corp. last sold a combined $5 billion in bonds on Feb. 4, 2009, according to Dealogic. Novartis AG served as the issuer parent.

A request seeking comment from Novartis wasn't immediately answered.

"We expect high-grade new issue supply to accelerate from $15 billion, priced in the first week of March, to $20 billion to $25 billion this week, as issuers access the market after the earnings season," according to Hans Mikkelsen at Bank of America Merrill Lynch. He said that strong demand is also supporting higher supply volumes.

There is "massive demand for IG cash," said Lindsey Spink, an investment grade trader at AXA. Most new issues are oversubscribed.

Other deals on offer include Amgen Inc.'s (AMGN) $1 billion bonds, American Honda Finance's $1 billion issue, Anadarko Petroleum Corp.'s (APC) $750 million 30-year note and Royal Bank of Scotland Group PLC's (RBS, RBS.LN) benchmark-sized five-year issue. Denmark's largest bank, Danske Bank (DANSKE.KO), is priming its benchmark-sized five-year offering in the private placement Rule 144a market.

Real estate investment trust ProLogis (PLD) is also readying its benchmark-sized offering of 10-year senior notes in order to pay down its debt.

Smaller offerings from Georgia Power Co. and Transalta Corp. (TAC, TA.T) are also on tap Tuesday.

In the high yield market, smaller deals have been in vogue for the past several days, punctuated by an occasional larger issue, such as MGM Mirage's $845 million offering of senior secured 10-year notes, announced on Monday.

Also on Monday, Building Materials came to market with $325 million in 10-year notes, and Sonic Automotive said it would sell $210 million of 8-year notes.

A slowdown in new junk bond supply in the second half of February has led to a buildup of investor cash, and several new bonds that priced in the first week of March were heavily oversubscribed and traded higher by two points or more in the secondary market, noted Wes Sparks, head of U.S. fixed income at Schroders.

"There are few deals in the road show process right now, but the new issue shadow pipeline is believed to be large," Sparks wrote in a note this week. "We would expect supply to pick up as the market tone improves further."

Reasons for the slew of new paper gracing the corporate primary markets vary, but improved sentiment is apparent.

"The reason is straightforward--there is a measured response to the calm in the market relating back to concerns over Greece," said Scott MacDonald, director of research at Aladdin Capital Holdings in Stamford, Conn. "There is a cautious perception that sovereign risk has been somewhat reduced and this gives investors a chance to return to the market."

To be sure, European credit markets began the week on the right foot, with Greece's credit default swaps trading at 290 basis points, a considerable improvement from a 400 basis point level seen in early February, according to Gavan Nolan, vice president of research at Markit. As overseas governments including Greece and Portugal continue to find their fiscal footing, investor concern has lessened and risk has taken a back seat to yield pick-up.

"All in yields are extremely low, spreads are relatively attractive and almost everyone expects rates to move higher eventually," according to Tom Murphy, sector leader and portfolio manager at RiverSource Investments in Minneapolis. He said the only debate seems to be about when rates will begin to move higher. "With corporate America seemingly more sanguine about their business prospects, why not borrow to invest for growth?" Murphy said.

Guy LeBas, chief fixed-income strategist at Janney Capital Markets in Philadelphia said the tone in the corporate market is "good" and pointed out that deals sold on Monday have also performed well in the secondary market.

DirecTV Group Inc.'s (DTV) 3.50% issue due 2015 is currently bid 10 basis points better to 110 basis points over Treasurys, according to one NY-based bond trader.

-By Kellie Geressy-Nilsen, Dow Jones Newswires; 212-416-2226; kellie.geressy@dowjones.com

(Anusha Shrivastava, Prabha Natarajan and Michael Aneiro also contributed to this report.)

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