A Busy Day In Bond Markets As Companies Tap Record-Low Yields

Companies are flooding the U.S. corporate bond market, taking advantage of heavy demand from investors who are keen to buy debt from well-regarded borrowers despite yields hitting record lows again last week.

At least nine investment-grade borrowers are floating deals in Monday's market, led by a three-part deal from DirecTV Group Inc. (DTV) and two-part deals from UnitedHealth Group Inc. (UNH), Philips Electronics, and CenturyLink Inc. (CTL).

Including junk bonds from speculative-grade companies, at least 17 borrowers are in the corporate market. That is the most for any single day so far this year, according to data provider Dealogic. The record for the most bond sales in one day is 33, from Nov. 15, 2002, in records dating back to 1995.

Companies are enticed by the lowest borrowing costs in decades, while investors are buying because they believe there is still value even at today's low rates.

The average yield on securities in Barclays' investment-grade corporate bond index was 3.27% on Friday; that was a record low--the fifth record set in recent weeks--according to Barclays data, which goes back almost four decades.

Part of that is attributable to unusually low Treasury yields, to which investment-grade yields are benchmarked. Still, the spread, or extra yield investors demand to buy riskier corporate debt, closed just under 1.8 percentage points last week, the lowest since Aug. 9, 2011.

"If you put aside the low yields, you still have attractive valuations," said Anthony Valeri at LPL Financial, noting the long-term average spread is half a percentage point lower, at 1.3 points. "When you look at fundamentals, they are as strong as they have ever been."

In the junk bond market, average yields fell below 7% last week for the first time since early June 2011, according the Barclays Capital U.S. high-yield index. The index finished the week with an average yield of 7.02%, or 1.34 percentage points lower than year-end 2011.

John Cokinos, head of leveraged-finance capital markets at Bank of America Merrill Lynch, said companies are seeking to refinance at low rates and for longer terms.

"We are seeing companies report their year-end results for 2011, getting their earnings out and taking advantage of the market as soon as they can," he said, noting there is at least $4.5 billion of high-yield issuance entering the market Monday.

Globally, high-yield issuance totaled $73 billion as of Friday, about $8 billion ahead of last-year, according to Dealogic.

The biggest investment-grade deal appears to be from DirecTV, which is offering five-, 10-, and 30-year debt at 1.60, 1.85, and 2.10 percentage points over Treasurys, respectively; a deal size has yet to be determined, but sources say it could be $4 billion.

Electronics maker Philips was offering $1 billion of 10-year notes at 1.8 percentage points over Treasurys and $500 million of 30-year bonds at 2 percentage points over Treasurys.

UnitedHealth is offering $600 million of 10-year notes at 0.95 percentage points over Treasurys and $400 million of 30-year bonds at 1.25 points over Treasurys. CenturyLink's deal includes 10-year notes at a spread of 3.875 percentage points and 30-year bonds at 4.55 points.

In the largest junk-bond deal Monday, casino operator Wynn Las Vegas is marketing $900 million of first mortgage notes for repayment of bank debt and general corporate use. Early price talk suggests the notes will offer around 5.5%.

-By Patrick McGee, Dow Jones Newswires; 212-416-2382; patrick.mcgee@dowjones.com

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