Investment-grade bond yields plunged to the lowest since at least October 1986 yesterday as the Federal Reserve pledges to hold interest rates near zero percent through at least late 2014 and investors seek safer assets.

The yield on Bank of America Merrill Lynch's U.S. Corporate Master index fell to 3.44 percent yesterday, passing the previous low of 3.45 percent reached in August. That's lower than the 3.5 percent the U.S. government's 10-year Treasury yielded as recently as April, before falling to 1.90 percent.

Borrowers from Walt Disney Co. to International Business Machines Corp. are taking advantage of coupons at all-time lows as investors seek a haven from Europe's sovereign-debt turmoil, driving down Treasury yields. At the same time, the Fed's low interest-rate policy is forcing buyers to take extra credit risk as they seek higher returns, increasing demand for such securities.

Yields on investment-grade debt have tumbled from 4 percent a year ago and 4.55 percent in February 2010, according to Bank of America Merrill Lynch index data. That's down from as high as 9.3 percent in October 2008 as credit markets froze in the aftermath of the collapse of Lehman Brothers Holdings Inc.

Investment-grade borrowers have issued $195.3 billion of U.S. dollar-denominated debt in 2012, surpassing the $188.3 billion offered in the similar period last year, according to data compiled by Bloomberg. Last year's issuance was $883.5 billion.

Disney, the biggest U.S. entertainment company, sold $1.4 billion of debt this month, including $1 billion of 1.125 percent five-year notes, a record low for the company for that maturity, Bloomberg data show.

IBM, the world's biggest computer services company, obtained a record-low coupon on three-year notes when it sold $1.5 billion of 0.55 percent notes due in February 2015 this month, the data show.

Bloomberg News

Instant Insights /

Investment-Grade Ylds at New Lows

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