Issuance soared to $48.2 billion, eclipsing the $46.9 billion raised in the week ended May 8, 2009, as General Electric Co.’s finance unit sold $6 billion of notes in the largest sale in 11 months, according to data compiled by Bloomberg. Investment-grade bond spreads narrowed to 162 basis points, or 1.62 percentage points, the tightest since May 4, 2010, Bank of America Merrill Lynch index data show.
Investors’ appetite for company debt is growing even after annual sales topped $1 trillion for the second consecutive year as the securities outperform Treasuries. Claims for jobless benefits declined to the lowest level since July 2008 and service industries expanded at the fastest pace since May 2006, signaling the U.S. economy is poised to accelerate.
“We’ve had a lot of good news come up economically, at least within the U.S., so that’s put some wind behind the sails,” said Thomas Chow, a money manager at Philadelphia-based Delaware Investments, who helps oversee $120 billion of fixed- income assets.
Offerings from foreign borrowers dominated U.S. sales this week, with transactions by companies from Sydney-based Macquarie Group Ltd. to the U.K.’s Barclays Plc accounting for 57 percent of the total, Bloomberg data show. Relative yields on U.S. corporate bonds became narrower than those on company debt worldwide last month for the first time on record, Bank of America Merrill Lynch index data show.
Moody’s Forecast
Elsewhere in credit markets, Moody’s Corp. boosted its 2010 earnings forecast for the second time in less than three months because of “robust” bond issuance, the cost of protecting European corporate debt against default rose the most since June, and leveraged loan prices increased for a ninth day, reaching the highest in almost two years.
Moody’s expects full-year earnings per share to range from $2.08 to $2.14, compared with a previous forecast of $1.90 to $1.96, the New York-based company said today in a statement. It raised its guidance previously on Oct. 28 after reporting a 35 percent jump in third-quarter earnings. Five analysts surveyed by Bloomberg estimated profit of $1.93 per share.
“The updated guidance is driven by a higher revenue forecast associated with robust fourth-quarter bond market issuance benefiting Moody’s Investors Service,” the ratings company said in the statement.
GE Bonds
Bonds from Fairfield, Connecticut-based GE were the most actively traded U.S. corporate securities by dealers, with 217 transactions of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 5.8 basis points to 108 basis points, according to index administrator Markit Group Ltd. The 5.7 percent increase was the most since 6.3 percent on June 29.
The cost of protecting U.S. company bonds from default rose for a second day. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 3.7 to a mid-price of 86.7. The index typically rises as investor confidence deteriorates and falls as it improves.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point, or 0.01 percentage point, equals $1,000 annually on a contract protecting $10 million of debt.
Leveraged Loans
The S&P/LSTA U.S. Leveraged Loan 100 Index rose 0.20 cent to 93.7 cents on the dollar today, the highest since Jan. 16, 2008. The index tracks the 100 largest dollar-denominated first- lien leveraged loans, which are usually rated below Baa3 by Moody’s and BBB- by Standard & Poor’s.
U.S. commercial paper outstanding declined $3.3 billion to $965.7 billion in the week ended Jan. 5, the Federal Reserve said today on its web site. That’s the lowest for seasonally adjusted data compiled by Bloomberg going back to 2000.
In emerging markets, relative yields rose 8 basis points to 227 basis points, the first increase this week, according to JPMorgan Chase & Co. index data.
Yankee Issues
Macquarie Group, Barclays, Sumitomo Mitsui Banking Corp. and Deutsche Bank AG led $27.4 billion of offerings from foreign banks this week, Bloomberg data show.
“The expectation coming into this year was that Yankee issuance would be heavy,” said Jim Probert, managing director and head of investment grade capital markets at Bank of America Merrill Lynch. “There’s enough maturing debt coming out of European financials in particular that they needed to be in the marketplace, and right now, U.S. dollars is a good alternative, in addition to euros.”
Investors are paying up to own investment-grade corporate debt even after the securities tumbled in November and December, leading to the worst quarter since the three months ended September 2008, Bank of America Merrill Lynch index data show. Investment-grade corporate bonds lost 1.6 percent in the fourth quarter, compared with a loss of 2.7 percent for Treasuries, the index data show.
Yields on the 10-year Treasury jumped 50 basis points last month to 3.29 percent on Dec. 31 and ended at 3.39 percent today.
‘Still Exceptional’
“Whenever you get a back-up in rates, you get more people coming in to buy bonds,” said Timothy Cox, an executive director of debt capital markets at Mizuho Securities USA in New York. “The overall demand is still exceptional and we think it’s going to remain strong going forward.”
Absolute yields on investment-grade corporate securities have increased to 4.22 percent from 3.87 percent on Nov. 30, Bank of America Merrill Lynch index data show. Meanwhile, spreads on the debt have shrunk 19 basis points to the tightest since touching 160 basis points on May 4. Globally, spreads on investment-grade corporate bonds are 166 basis points. Financing costs remain “pretty attractive” to chief financial officers even as yields rise, said Tom Murphy, a money manager who helps oversee more than $22 billion of investment- grade credit at Columbia
Management in Minneapolis.
‘Yield Opportunities’
“If you’re a treasurer or CFO and you kind of block out what’s happened over the last six weeks and just take a look at the longer-term yield opportunities in the marketplace, the yields are still well below their long-term averages,” said Murphy, who expects $75 billion of investment-grade issuance this month.
Investment-grade debt yields were 4.75 percent a year ago, Bank of America Merrill Lynch index data show.
The offering by GE Capital, based in Stamford, Connecticut, was the largest sale in the U.S. since Feb. 4, 2010, when Kraft Foods Inc. sold $9.5 billion of bonds and Berkshire Hathaway Inc. issued $8 billion of debt, Bloomberg data show.
The average number of applications for jobless benefits over the past four weeks dropped to 410,750, the lowest level since July 2008, Labor Department figures showed today in Washington. The Institute for Supply Management’s non-factory index, which covers about 90 percent of the economy, rose to 57.1, exceeding the median forecast of economists surveyed by Bloomberg News, from 55 in November. A reading greater than 50 signals growth.
Toyota Motor Credit Corp., the U.S. finance unit of the world’s largest automaker, issued $1.6 billion of debt, including five-year notes with a relative yield 50 basis points, or 0.5 percentage points, narrower than in its previous offering of debt with that maturity, according to data compiled by Bloomberg.
“Just back from the holidays and with some encouraging news on the economic front, we found market conditions to be positive,” said Steve Howard, head of capital markets and derivatives at Toyota Motor Credit, a unit of the world’s largest automaker. “Investors continue to see value in our name and as such, our transaction was met with robust demand.”
To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Sapna Maheshwari in New York at smaheshwar11@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
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