By Patrick McGee
Companies are continuing to bring new debt deals to the market
before Greece holds parliamentary elections on June 17, an event
that has the potential to hurt risk sentiment and dry up bond
issuance.
Six high-grade companies are issuing more than $2.5 billion
combined Tuesday, following a $6.95 billion tally on Monday. The
slew of deals to start the week indicate companies are confident
they can find investors and borrow at low interest rates, yet they
also suggest some nervousness about selling bonds later this month,
according to market participants.
Unlike Monday, when five of the deals were for $750 million or
more, including a $2 billion offering from AT&T Inc. (T), most
of Tuesday's deals are small. Two 10-year transactions from Brazil
led the way--Banco do Brasil (BBAS3.BR, BDORY) is selling $750
million, and aerospace and defense company Embraer SA (ERJ,
EMBR3.BR) is selling $500 million--along with a $400 million deal
from New York-based agribusiness Bunge Ltd. (BG).
Low interest rates continue to entice a variety of borrowers
into the market, while investors are feeling comfortable, thanks to
a wider-than-usual risk-premium, or spread, owing in part to
ultralow Treasury rates.
According to Barclays, the average corporate bond yield was
3.32% Monday, just 0.07 percentage point from the all-time low. The
average spread was 2.07 points, versus an average of 1.82 points
over the past two years.
The dynamic enabled Embraer to cut the offered yields on its
10-year bond to 5.15%, versus 5.375% in original pricing guidance.
Banco do Brasil launched its deal at 6%, versus 6% to 6.125% at
original guidance, and it found the terms favorable enough to
increase the size of its deal to $750 million from an original $500
million.
Other deals included a $300 million, 10-year deal from Florida
Gas Transmission Co., a $325 million, subordinate debt deal from
NextEra Energy Inc. (NEE), and a $250 million, five-year offering
from Sallie Mae parent SLM Corp. (SLM).
The new deals found a receptive audience despite a mixed
backdrop, with Markit's CDX North America Investment Grade Index, a
proxy for risk sentiment, weakening between 0.3% and 1% in
afternoon trading.
MarketAxess showed actively traded financial bonds were losing
value to Treasurys, but nonfinancial corporates were stable or
improving. Spreads jumped 0.14 percentage point on Goldman Sachs
(GS) 2015 bonds and 0.05 point on J.P. Morgan (JPM) 2022 bonds, for
instance, but Deere & Co. (DE) 2022 bonds tightened 0.04 point,
and the 2043 bonds from natural gas company NiSource Inc. (NI)
improved 0.06 point.
Deere and NiSource were each issued in the last week. When newly
issued bonds improve in the secondary market, it helps persuade
more investors and issuers to take part in the primary market.
Demand for new offerings could also be seen in the $1 billion
offering from Hydro-Quebec, a government-owned public utility, and
the five-year, $1.25 billion covered bond deal from National
Australia Bank Ltd. (NABZY, NAB.AU). Neither is classified as a
corporate bond by data provider Dealogic, which tracks
issuance.
Hydro-Quebec sold five-year bonds to yield 1.399%, or 0.65
percentage point over the Treasury rate, while National Australia
Bank Ltd. was on track to sell its bonds at 1.0 point over an
industry standard midswap price.
The covered bonds are backed by the bank as well as a pool of
Australian prime residential mortgages, earning them triple-A
ratings.
Write to Patrick McGee at patrick.mcgee@dowjones.com