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

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

Borrowers from Walt Disney Co. to International BusinessMachines Corp. are taking advantage of coupons at all-time lows asinvestors seek a haven from Europe's sovereign-debt turmoil,driving down Treasury yields. At the same time, the Fed's lowinterest-rate policy is forcing buyers to take extra credit risk asthey seek higher returns, increasing demand for suchsecurities.

Yields on investment-grade debt have tumbled from 4 percent ayear ago and 4.55 percent in February 2010, according to Bank ofAmerica Merrill Lynch index data. That's down from as high as 9.3percent in October 2008 as credit markets froze in the aftermath ofthe 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 billionoffered in the similar period last year, according to data compiledby Bloomberg. Last year's issuance was $883.5 billion.

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

IBM, the world's biggest computer services company, obtained arecord-low coupon on three-year notes when it sold $1.5 billion of0.55 percent notes due in February 2015 this month, the datashow.

Bloomberg News

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