--Seven issuers selling at least $8.65 billion of bonds
Tuesday
--Calendar led by Diageo, Penske Truck Leasing, Berkshire
Hathaway and IBM
--Investors say market is ready for substantial volume
(Updates throughout with deal sizes and bond prices, updated
tally in the second paragraph, Mizuho commentary in the third
paragraph, Deutsche Asset commentary in the ninth and 10th
paragraphs, BondDesk data in the 16th paragraph, and record-low
coupon data in the 20th paragraph.)
By Patrick McGee
Of DOW JONES NEWSWIRE
NEW YORK (Dow Jones)--Call it the Day of the Jumbo Bond.
Seven high-grade companies were on track to issue almost $9
billion of debt Tuesday, including four jumbo trades of $1 billion
or more. The daily tally grew as three borrowers enlarged their
offerings by 50% or more.
Companies took some risk tapping the markets considering
equities were down nearly 2% in the morning, but the gamble paid
off, said Vincent Murray, head of fixed-income syndicate at Mizuho
Securities. He said some issuers paid a little more in spread--the
extra yield over Treasurys--but absolute yields were very low
thanks to a rallying Treasury market and a strong reception for
highly-rated bonds.
International Business Machines Corp. (IBM) even achieved a
record-low for seven-year bonds. It issued them with a 1.875%
coupon, becoming the first company ever to sell seven-year paper at
less than 2%. The spread to Treasurys was just 0.65 percentage
points, yielding 1.898%.
When IBM issues bonds, others follow, knowing that Big Blue has
a knack for achieving record-low yields. So perhaps it's no
coincidence that within a half-hour of IBM reporting plans to issue
three- and seven-year bonds, Berkshire Hathaway (BRKB) and beverage
company Diageo (DEO) each disclosed their own three-part debt
issues.
Diageo was on path to sell $2.5 billion, while IBM and Berkshire
sold $1.5 billion and $1.6 billion, respectively. The fourth jumbo
deal is from Penske Truck Leasing Co., which enlarged its two-part,
$750 million offering to $1.75 billion just before launching.
Southern Co. unit Georgia Power and Motorola Solutions Inc.
(MSI) were doing their best to be part of the club, each enlarging
their $500 million deals to $750 million.
Those efforts helped Tuesday become the second-busiest session
of the quarter, and the 13th-busiest of 2012, according to
Dealogic.
Still, there weren't enough bonds to go around, said Tom Farina,
head of corporate sector fixed income team at Deutsche Insurance
Asset Management, who noted deals were heavily oversubscribed.
"The right kind of deals hit the market today," he said.
"Despite the concerns coming out of Europe, investor demand
continues to be upbeat."
The flurry of jumbo deals comes at a time of record-low yields
for highly-rated bonds. The widely watched Barclays U.S.
Investment-Grade Index finished last week at 3.25%, the lowest
level in data going back almost four decades. On Monday it ticked
up to 3.26%, the second-lowest rate on record.
With the 10-year yield touching 1.814% Tuesday, the lowest level
since Feb. 3, corporate bond yields might just break Friday's
record. Sentiment in the secondary market isn't great, however.
Markit's CDX North America Investment-Grade Index, a barometer of
health, was 0.8% weaker in late trading.
The robust issue comes on the heels of the $24.6 billion issued
last week, the fifth-busiest week of 2012, Dealogic shows. But
Susanna Gibbons, head of fixed-income credit research at RBC Global
Asset Management, said she isn't concerned about the market
becoming saturated.
Even after near-record volume in the first quarter, net issuance
is growing minimally as the amount of principal returning to
investors mostly offsets new issuance, she noted, while inflows
from mutual funds continue to indicate strong demand.
"Most deals really have had no problem getting done, and in
particular higher-quality paper is being snapped up," she said.
According to BondDesk, $63 billion of investment-grade debt is
scheduled to mature this month, versus estimates that monthly
issuance will be around $80 billion. As for inflows, bond mutual
funds and exchange-traded funds took in $46.9 billion from January
through April, according to Lipper, a Thomson Reuters unit.
In addition to selling seven-year bonds at a record-low, IBM
sold three-year notes at 0.45 percentage points over Treasurys,
yielding 0.806%. IBM's debt is rated Aa3 by Moody's Investors
Service and A-plus from Standard & Poor's and Fitch
Ratings.
Diageo was planning to sell five-, 10-, and 30-year bonds at
spreads over Treasurys of 0.82, 1.07, and 1.25 percentage points,
respectively. They are rated A3 by Moody's and A-minus by S&P
and Fitch.
Berkshire sold five-, 10-, and 30-year bonds at spreads of 0.85,
1.25, and 1.45 points. The yields were 1.616%, 3.09%, and 4.478%,
respectively. They are rated Aa2 by Moody's and AA-plus by
Fitch.
The lowest coupons for U.S. corporate bonds for five-, 10-, and
30-year bonds are 1.125%, 2.30%, and 3.70%, respectively, according
to Dealogic.
IBM and Diageo each borrowed for general corporate purposes,
while Berkshire was raising funds to retire up to $700 million of
4.75% coupon notes due this year, and to replace $1 billion of 4%
notes that matured last month.
The Penske bonds included three- and five-year debt, which
respective spreads of 2.80 and 3 points over Treasurys, yielding
3.159% and 3.766%.
Georgia Power sold 10- and 30-year bonds at spreads of 1.03 and
1.20 points, yielding 2.87% and 4.228%.
Motorola's offering was all 10-year debt, sold at 1.95 points
over Treasurys.
Earlier in the session, Malaysia's RHB Bank Berhad sold $300
million of 3.25% bonds due 2017, pricing them at 2.25 percentage
points over Treasurys.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com