By Patrick McGee
Five high-grade companies are tapping the debt markets with a
combined $2.3 billion worth of small offerings Monday as investor
appetite for bonds rebounds alongside stock prices.
New deal volume is usually meager in the shortened Thanksgiving
week. Less than $1 billion of high-grade bonds were sold in the
week last year, and the five-year average is just $6.25 billion,
according to data provider Dealogic. By comparison, roughly $30
billion of high-grade debt was priced last week alone.
But with yields near record lows and the equity market climbing
Monday, five companies--all rated triple-B, the lower end of the
investment-grade spectrum--sensed an opportunity to sell bonds
without having to compete with major borrowers.
British Sky Broadcasting Group PLC (BSYBY, BSY.LN)--partially
owned by News Corp. (NWS, NWSA), which also owns this newswire--is
offering $800 million of 10-year debt. Also, the financing arm of
engineered valve maker Pentair Ltd. (PNR) is selling $600 million
worth of debt in a two-part deal, and an operating arm of
natural-gas processor DCP Midstream Partners LP (DPM) is selling at
least $500 million worth.
The deals come as investor confidence climbs on speculation that
a political deal to avert the so-called fiscal cliff of automatic
spending cuts and tax increases will be averted. Markit's CDX North
American Investment Grade Index, a measure of U.S. corporate-bond
health, improved 4% in midafternoon trading.
In the past four weeks, buyer demand for investments perceived
as safer pushed the yield gap, or spread, between corporate and
Treasury bonds 0.19 percentage point wider, to 1.50 percentage
points. But the dynamic is reversing Monday.
Bank bonds are leading the rebound in the secondary market,
where bonds trade after they are issued. Barclays PLC's (BCS,
BARC.LN) 7.625% contingent capital bond, whose value falls to zero
if the bank's core capital ratio falls below a certain threshold,
is trading at just 5.94 percentage points over the 10-year
Treasury, versus 6.39 points last week. It is the most-active bond
in Monday's market, according to MarketAxess.
Recently issued bonds, which tend to trade more often, are also
outperforming Treasurys. BMC Software Inc.'s (BMC) 4.5% coupon
10-year bonds are 0.16 percentage point narrower to Treasurys, at
2.81 points, and the spread on real-estate investment trust HCP
Inc.'s (HCP) 2.625% bonds due 2010 are 0.12 point tighter at 1.03
points.
In Monday's primary market, British Sky Broadcasting is selling
10-year debt at a spread of 1.57 percentage points more than
Treasurys, down from a 1.60-point spread earlier in the marketing
period.
Pentair has also reduced the offered yield on its three- and
seven-year notes to, respectively, 1.03 and 1.65 points over
Treasurys.
DCP Midstream is selling its five-year bonds at 2.0 percentage
points over Treasurys, down from 2.05 points in earlier
guidance.
Smaller borrowers include DDR Corp. (DDR), another real-estate
investment trust, and speciality gas distributor Airgas Inc.
(ARG).
Write to Patrick McGee at patrick.mcgee@dowjones.com
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