--Corporate bonds yields at record low 3.16%
--Almost $9 billion of bonds sold in stable market
--Biggest back-to-back issuance sessions in four months
(Refreshed throughout; adds buy-side comments in paragraphs five
and eight through 11, deal sizes in second paragraph, and final
pricing details on Sumitomo and Penske bonds in paragraphs 14 and
15.)
By Patrick McGee
High-grade companies scurried to issue nearly $9 billion of
bonds Tuesday to exploit some of the lowest borrowing costs on
record.
Tokyo's Sumitomo Mitsui Banking Corp. led the market with a $3
billion bond deal, alongside a $2 billion offering from Chilean
state-owned mining company Corporacion Nacional del Cobre de Chile,
known as Codelco, and a $1.1 billion deal from Pennsylvania-based
Penske Truck Leasing Co.
All are enticed by the same dynamics: low yields and heavy
demand.
Barclays's index of corporate bonds hit a record-low yield
Monday at 3.16%, a full 0.20 percentage points under the lowest
yield heading into 2012. Data goes back to 1973.
"It's very much an issuer's market, rather than an investor's
market," said Jody Lurie, corporate credit analyst at Janney
Montgomery Scott. "Investors have so much cash ... and new issues
are the best option because they are generally the most
liquid."
Liquidity refers to how easily an investor can buy and sell
bonds in large quantities.
Monday's session, when the market absorbed $6.8 billion of
bonds, proved how strong investor reception is. Missouri-based
agricultural biotechnology company Monsanto Co. (MON) even broke a
record-low coupon rate when it sold 30-year bonds at a paltry
3.60%, according to data going back to 1995 from Dealogic.
That encouraged issuers to keep the party going Tuesday, helping
to create the busiest back-to-back sessions in four months,
Dealogic shows.
Sean Simko, head of a fixed-income portfolio management at SEI
Investments, said investor appetite "remains robust" as investors
increasingly believe that "the low-yield environment is here to
stay."
"We are not anticipating yields moving higher in the near future
and at this point we feel credit fundamentals remain healthy," he
added.
Mr. Simko, whose team manages $7 billion of assets, said he has
been purchasing new-issue bonds with a preference for non-financial
companies.
Investors who have purchased low-yielding bonds have been
generously rewarded this year, as outsized demand has pushed up
prices and boosted returns. High-quality corporate bonds have
delivered a 5.81% total return this year, beating Treasurys by 2.82
percentage points.
And because Treasury rates are so low, average corporate yields
still give investors an extra 1.97 percentage point more than
Treasurys, according to Barclays.
Sumitomo Mitsui sold three-, five-, and 10-year bonds at yields
of 1.356%, 1.82%, and 3.20%, respectively. Each was sold at a
substantially lower cost than a similar offering in January. The
five-year bonds gave investors 1.20 percentage points more than
Treasurys, for instance, whereas it January the Japanese bank paid
a spread of 1.80 percentage points on five-year debt.
Penske sold two-year and 10-year bonds at yields of 2.52% and
4.955%, respectively.
The deal follows Penske's debut offering for $1.75 billion in
early May. Chief executive Brian Hard said in May he was "very
pleased" with the market's reception and indicated the company
would continue to borrow if rates remained attractive. Hard was
unavailable to comment Tuesday.
Low yields have enticed companies to borrow nearly $530 billion
of high-grade debt so far this year, outpacing the year-to-date
2011 pace of $512 billion, according to Dealogic.
Ms. Lurie said issuance is likely to taper off in coming weeks,
however, as companies enter regulatory blackout periods during the
second-quarter earnings period, which began this week.
-Write to Patrick McGee at patrick.mcgee@dowjones.com