United Technologies Corp.'s $9.8 billion offering, the largestin more than three years, sent U.S. corporate bond saleshigher last week even as speculative-grade issuance plummetedto the lowest levels of 2012.

Overall issuance soared 38 percent from the previous week to$19.4 billion while junk bond sales declined 60 percent to $1.9billion, according to data compiled by Bloomberg. Hartford,Connecticut-based United Technologies, which last tapped the marketmore than two years ago, sold debt in six portions ranging from18-month floating-rate notes to 30-year bonds.

Bond buyers are being lured by higher-rated debt like that ofthe maker of Sikorsky helicopters and Pratt & Whitney enginesas turmoil in Europe sends them to safer assets. Whileinvestment-grade returns in the U.S. are down 0.2 percent thismonth through yesterday, speculative-grade bonds have declined 1.3percent, according to Bank of America Merrill Lynch index data.

“If Europe blows up, there's a flight of quality to single Acorporate industrials,” Mark Pibl, head of credit strategy atbroker-dealer Cortview Capital Securities LLC, said in a telephoneinterview.

The extra yield investors demand to own corporate bonds ratherthan similar-maturity Treasuries expanded 4 basis points from lastweek to 314 basis points as of yesterday, the widest since Jan. 31,according to Bank of America Merrill Lynch index data.

United Technologies's offering was the biggest since March 2009when Pfizer Inc. sold $13.5 billion of bonds in a five-partoffering. Proceeds from the sale will be used to help fund theaerospace and building-system company's acquisition of Charlotte,North Carolina-based Goodrich Corp.

The company sold floating-rate debt that included $1 billion of18-month notes yielding 27 basis points more than the Londoninterbank offered rate, and $500 million of three-year debtyielding 50 basis points more than Libor.

It also sold $1 billion of 1.2 percent, three-year notes; $1.5billion of 1.8 percent, five-year debt; $2.3 billion of 3.1percent, 10-year securities; and $3.5 billion of 4.5 percent,30-year bonds, the data show.

Relative yields for U.S. investment-grade debt rose to 225 basispoints as of yesterday, up 2 basis points from May 18 and belowlast year's high of 272 on Oct. 5, Bank of America Merrill Lynchindex data show.

McDonald's Record Low

McDonald's Corp., the world's largest restaurant chain, raised$900 million in a two-part offering on May 23 with the 1.875percent coupon on its $400 million of seven-year debt matching arecord low set by International Business Machines Corp. on May 8,the data show. It also issued three-year notes at 0.75 percent toyield 45 basis points more than similar-maturity Treasuries.

BlackRock Inc., the world's biggest asset manager, sold $750million each of 1.375 percent, three-year notes on May 22 at aspread of 100 basis points and 3.375 percent, 10-year debentures at165 basis points, the data show. The coupons were the lowest onrecord for three- and 10-year debt issued by the company.

Debt offerings were 14 percent below the $22 billion weeklyaverage for the last 12 months, according to Bloomberg data. Globalbond sales reached at least $57 billion, below the weekly averageof $61 billion

High-yield, high-risk issuance dropped to the lowest weeklylevel since December, according to Bloomberg data. The biggestissuer in the market was NGPL PipeCo LLC which sold $550 million of9.625 percent, seven-year notes with a 842 basis-points spread.

Yields reached 7.91 percent this week, the highest level sinceJan. 31, according to the Bank of America Merrill Lynch U.S. HighYield Master II index. High-yield, or junk, bonds are rated belowBaa3 at Moody's Investors Service and lower than BBB- by Standard& Poor's.

“The high-yield market still offers a good amount of incrementalyield,” Thomas Chow, a money manager at Delaware Investments inPhiladelphia with about $170 billion under management, said in atelephone interview. “If you can select the right names you will berewarded for it, but you just have to realize that there will begreater mark to market volatility.”

Faced with Greece's potential exit from the common currency,Europe's leaders sought to contain the region's fiscal crisis, asGermany's Chancellor Angela Merkel left the door open to acompromise on debt sharing. Italian Prime Minister Mario Monti saidhe can help bring Germany around to acting in Europe's “commongood.”

While Merkel refused to back joint euro-area bonds at a Brusselssummit on May 23, Germany's opposition parties wrung a concessionfrom the chancellor on her return to Berlin yesterday to reconsidera separate proposal on common liability for sovereign debt.

American International Group Inc., the insurer majority owned bythe U.S. government after a 2008 bailout, issued $750 million indebt as an auction of $1.7 billion of its assets was resumed by theFederal Reserve, the data show. The New York-based company sold4.875 percent, 10-year bonds at a spread of 325 basis points, thedata show. Citigroup Inc. bought the mortgage-tied securities fromthe Federal Reserve Bank of New York, the district bank saidyesterday.

Bloomberg News

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