Deere Sells 30-Year Corporate Bonds at Record Low Yields
September 03 2019 - 4:25PM
Dow Jones News
By Sam Goldfarb
Deere & Co. sold 30-year bonds at a record low yield for
U.S. corporate debt of that maturity on Tuesday, seizing on
tumbling U.S. Treasury yields to lock in favorable interest
rates.
On a busy day for corporate bond issuance, Deere sold 30-year
bonds at an initial yield of 2.877%. That broke the previous record
of 3.197% that Walt Disney Co. had set when it sold 30-year bonds
in July 2016, according to LCD, a unit of S&P Global Market
Intelligence.
Disney was also in the hunt Tuesday for a record low yield on
30-year corporate bonds. Earlier in the day, the Burbank,
Calif.-based company locked in a yield premium, or spread, on new
30-year bonds at 0.95 percentage points -- the same level as
Deere's bonds. The bonds, though, hadn't priced when the Deere
bonds were sold, and their initial yield could be different based
on moves in the Treasurys market.
Both companies were planning to use proceeds from their bond
sales to pay down existing debt.
Overall, investors expected more than 20 companies to sell bonds
Tuesday, as businesses rushed to lock in low rates following a
monthlong decline in government bond yields. Those continued to
decline after weak manufacturing data added to concerns that a
slowdown in global growth is catching up to the U.S.
Helping drag down corporate bond yields, the yield on the
benchmark 30-year Treasury settled Tuesday at 1.954%, compared with
1.968% on Friday. That was just above its record low of 1.941% set
last week.
The yield on the 10-year note also moved closer to its record
closing low of 1.366% -- falling to 1.461% from 1.503% on Friday.
The market was closed Monday for Labor Day.
Yields, which fall when bond price rise, dropped sharply after
the Institute for Supply Management said its manufacturing index
decreased to 49.1 in August from 51.2 in July. That indicated a
contraction in the sector for the first time since 2016 and came
after other reports showed a decline in factory activity in the
U.K., Germany, Japan and South Korea.
Falling Treasury yields are a concern for investors because they
are typically associated with declining expectations for economic
growth. But they also could provide benefits to the economy by
reducing borrowing costs for businesses and consumers.
In recent weeks, the average extra yield, or spread, that
investors demand to hold investment-grade corporate bonds versus
comparable Treasurys has ticked higher -- rising to 1.21 percentage
points from a recent low of 1.07 percentage points in late July,
according to Bloomberg Barclays data. Even so, the average yield on
such bonds dropped to 2.79% last week -- its lowest level since
September 2016, Bloomberg Barclays data also said.
The WSJ Dollar Index, which tracks the U.S. currency against a
basket of 16 others, was recently down around 0.2% at 91.80.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
September 03, 2019 16:10 ET (20:10 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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