Companies worldwide are selling bonds at the second-fastest paceon record with investors seeing the debt as an alternative totraditional havens such as government securities that are nowpaying negative yields.

Anheuser-Busch InBev NV, the world's biggest brewer, and MexicoCity-based America Movil SAB de CV led sales this week of at least$74.2 billion, bringing this year's total to $2.08 trillion,according to data compiled by Bloomberg. That's second only to the$2.37 trillion issued at this point in 2009.

Investors are seeking corporate bonds with investment-gradeyields that average a record-low 3.13 percent, or 2.13 percentagepoints more than government securities, and balance sheets thathold near record amounts of cash, according to Bank of AmericaMerrill Lynch index data. At the same time, stocks and commoditiesare losing money as Europe's debt turmoil spreads and the globaleconomy falters.

“For an increasing number of investors, corporate bonds areserving as de facto substitutes for Treasury securities, but withhigher yields,” Edward Marrinan, macro credit strategist at RoyalBank of Scotland Plc in Stamford, Connecticut, said in a telephoneinterview.

Company bond offerings are exceeding the pace set in the sameperiod of 2011 by $3.2 billion, Bloomberg data show. Sales slumpedin April after a record first quarter amid Europe's deepening debtstrains and signs of a U.S. economic slowdown.

Corporate debt has returned 6.45 percent this year, alreadyexceeding the 5.16 percent in all of 2011, according to the Bank ofAmerica Merrill Lynch Global Broad Market Corporate index. Thatcompares with a 3.63 percent return, including reinvesteddividends, on the MSCI All-Country World Index of stocks and a lossof 4.65 percent on the Standard & Poor's GSCI Spot Index of 24commodities.

Elsewhere in credit markets, the cost of protecting corporatedebt from default in the U.S. declined, with the Markit CDX NorthAmerica Investment Grade Index, which investors use to hedgeagainst losses or to speculate on creditworthiness, decreasing 0.4basis point to a mid-price of 112.8 basis points as of 11:22 a.m.in New York, according to prices compiled by Bloomberg.

The measure typically falls as investor confidence improves andrises as it deteriorates. Credit-default swaps pay the buyer facevalue if a borrower fails to meet its obligations, less the valueof the defaulted debt. A basis point equals $1,000 annually on acontract protecting $10 million of debt.

Rate Swaps

The U.S. two-year interest-rate swap spread, a measure of bondmarket stress, increased 0.5 basis point to 23 basis points as of11:25 a.m. in New York. The gauge widens when investors seek theperceived safety of government securities and narrows when theyfavor assets such as corporate bonds.

Bonds of Mexico-based Grupo Financiero BBVA Bancomer SA are themost actively traded dollar-denominated corporate securities bydealers today, with 61 trades of $1 million or more as of 11:35a.m. in New York, according to Trace, the bond-price reportingsystem of the Financial Industry Regulatory Authority. The unit ofBanco Bilbao Vizcaya Argentaria SA, Spain's second-largest lender,sold $1 billion of 6.75 percent, 10-year bonds yesterday.

Five-year credit-default swaps on JPMorgan Chase & Co. fell3.7 basis points to a mid-price of 125.1 basis points, according todata provider CMA, which is owned by McGraw-Hill Cos. and compilesprices quoted by dealers in the privately negotiated market. That'sabout the lowest since May 10, the day JPMorgan first disclosed aloss from credit derivatives traded in its chief investment officein London, prices compiled by Bloomberg show.

Global bond offerings are reviving after sinking in April to$209.6 billion, the slowest month of the year, Bloomberg data show.Sales reached a record $1.2 trillion in the first quarter. Issuancewas $3.92 trillion in all of 2009.

Average yields on investment-grade corporate bonds are down fromthis year's high of 3.99 percent on Jan. 3 on the Bank of AmericaMerrill Lynch Global Broad Market Corporate index.

Even as yields tumble, investors still benefit from the gap withgovernment debt. The extra yield investors demand to holdinvestment-grade company bonds rather than government debt is 19basis points more than the low this year on March 20 and compareswith 78 basis points five years ago before the credit seizure, Bankof America Merrill Lynch index data show.

In the U.S., sales revived this week to at least $33.8 billionfrom $1.2 billion in the holiday-shortened period ended July 6 andcompare with a weekly average of $26 billion this year, Bloombergdata show.

Monsanto Bonds

“For issuers these circumstances are a boon,” Marrinan said.“Near record-low Treasury yields and enormous global demand forhigh-quality corporate exposure make for excellent conditions toborrow.”

Investor confidence in corporate debt may also be bolstered by adefault rate of 2.7 percent as of the end of the second quarter,compared with a historical average of 4.8 percent since 1983,according to Moody's. The ratings firm forecasts the rate will riseto 3 percent by year-end.

Monsanto Co., the world's biggest seed company, issued debtincluding $250 million of 30-year bonds at a 3.6 percent coupon,the lowest for that maturity, on July 9, Bloomberg data show.

America Movil sold $1.25 billion of 3.125 percent, 10-year notesyielding 168 basis points more than similar-maturity Treasuries and$750 million of 4.375 percent, 30-year securities, the datashow.

“They got tight spreads over an incredibly low base interestrate,” said Francis Rodilosso, an investment manager at Van EckAssociates Corp., calling the wireless carrier controlled bybillionaire Carlos Slim a “highly-regarded” emerging marketissuer.

The International Monetary Fund will cut its 3.5 percentestimate for global growth this year, Managing Director ChristineLagarde said last week. The “key emerging markets” of Brazil, Chinaand India are showing signs of slowdown and the IMF's growthoutlook “has regrettably become more worrisome,” Lagarde said July6 in Tokyo.

The IMF managing director is pressing for fiscal union in Europeto aid growth and financial stability as nations such as Greececonfront a sovereign-debt crisis.

S&P said yesterday that it downgraded 155 issuers worldwideand upgraded 125 during the second quarter.

Treasury 10-year note yields approached all-time lows after theU.S. sold $21 billion of the securities at a record 1.46 percentand minutes from the Fed's last meeting on June 19-20 showed somemembers favor more stimulus.

'Massive Crowding'

“People are searching for ways to find extra yields other thanTreasuries,” Rob Crimmins, a portfolio manager at RS Investments inNew York, which oversees $30 billion, said in a telephoneinterview. “The logical place to go is the corporate market.”

Two-year German government debt reached minus 0.04 percent andFrance sold its first-ever bills at negative yields yesterday.Borrowing costs slid as the European debt crisis, now in its thirdyear, drives investors to the safest assets.

The ratio of cash to total assets for companies in the Standard& Poor's 500 Index stands at about 9.8 percent, down from arecent peak of 10.3 percent in September, data compiled byBloomberg show. Five years ago, the ratio was 5.7 percent.

“There are certain assets that are being crossed off investors'lists,” Justin D'Ercole, head of Americas investment gradesyndicate at Barclays Plc in New York, said in a telephoneinterview. “What you're getting is massive crowding intodollar-denominated investment-grade credit.”

Anheuser-Busch InBev's offering, the second biggest of the year,will help finance its acquisition of a stake in Grupo Modelo SAB deCV. The deal was increased from an original range of between $4billion and $5 billion, said D'Ercole, who was one of thebookrunners on the deal.

The coupons on the three-, five-, 10- and 30-year bonds were thecompany's lowest on record for the maturities, Bloomberg datashow.

“Investors are presented with a dilemma every time an issuerprints a record low coupon,” Marrinan said. “Buy more low couponexposure, or pass and miss the chance to put the cash to work?”

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