Sales of corporate bonds in the U.S. decreased 11 percent this week, falling from the fastest pace in six months, following announcements of central bank efforts to curb borrowing costs and stimulate growth.
JPMorgan Chase & Co., the biggest U.S. bank, and Basel, Switzerland-based Novartis AG led borrowers selling at least $44.6 billion of debt, following $50.2 billion last week, according to data compiled by Bloomberg. Sales compare with a 2012 weekly average of $26.8 billion.
Issuance declined from the busiest week since the period ended March 9 after news of the European Central Bank’s unlimited bond-buying program and the Federal Reserve’s announcement of a third round of economic stimulus. This week’s slowdown is allowing investors to absorb earlier offerings and may be followed by an increase in sales next week, said Jody Lurie at Janney Montgomery Scott LLC.
“Issuers wanted to rush in before the Fed news to make sure they locked in rates they saw as attractive,” Lurie, a Philadelphia-based corporate credit analyst, said in a telephone interview. Sales “will not necessarily slow down unless something significantly changes rates, which I don’t think will happen anytime soon.”
Yields on bonds from the most creditworthy to the riskiest borrowers declined to 3.738 percent on Sept. 19, a record low, before reaching 3.743 percent yesterday, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master index. The extra yield investors demand to own corporate bonds was unchanged at 242 basis points.
Sales of investment-grade debentures reached at least $34.1 billion, and compare with $35.6 billion last week and a 2012 weekly average of $20.9 billion, Bloomberg data show.
JPMorgan sold $3 billion of 3.25 percent, 10-year securities that yield 155 basis points more than similar-maturity Treasuries, Bloomberg data show. The offering comes eight months after the lender issued $3.25 billion of 4.5 percent, senior unsecured securities due in 2022.
Novartis, Europe’s largest drugmaker by revenue, sold $1.5 billion of 2.4 percent, 10-year debentures to yield 68 basis points more than benchmarks and $500 million of 3.7 percent, 30- year bonds at a relative yield of 80 basis points, Bloomberg data show. The sale was the company’s first since March 2010, when it issued $5 billion in three parts.
“Issuers are taking advantage of the strong demand within the marketplace for paper,” Ashish Shah, the head of global credit investments at AllianceBernstein LP in New York, which oversees $230 billion in fixed-income assets, said in a telephone interview. “September is typically a big issuance month, particularly when you see a rally.”
Yields declined to 2.935 percent on Sept. 19, a record low, before reaching 2.936 percent yesterday, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Spreads decreased 2 basis points this week to 168 basis points.
Offerings of speculative-grade bonds reached at least $10.4 billion, and compare with $14.5 billion last week and a 2012 weekly average of $6 billion, Bloomberg data show.
“Now that we’re seeing rates are going to be low, there’s a yield grab again,” Lurie said. “There’s more demand for even lower-down rated credits.”
Yields on junk debt reached an unprecedented low of 6.948 percent on Sept. 19, before increasing to 6.974 percent yesterday, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Spreads increased 8 basis points to 538 basis points this week.
“The trends for high-yield are all favorable,” said Margie Patel, a money manager at Wells Fargo & Co. in Boston who oversees about $1 billion. “Treasuries are low, investment-grade are very low and the economy is at least moving forward.”
Company bond sales in the U.S. this month total at least $135.8 billion, the fastest pace on record for the month and exceeding the $124.6 billion sold in September 2009, Bloomberg data show.
Issuers planning sales include New York-based auction house Sotheby’s with $300 million of 10-year bonds and Qatar Islamic Bank with a $500 million issue, Bloomberg data show.
Borrowers will probably “want to tap the market before month end,” Lurie said. “Companies want to beautify their balance sheets for the third quarter.”