U.S. Corporate Bond Sales Decline

International Lease Finance and Burlington Northern Santa Fe led issuance of about $25 billion this week.

Sales of corporate bonds in the U.S. fell this week and relative yields narrowed as political wrangling in Washington deterred borrowers.

International Lease Finance Corp., the commercial aircraft unit of insurer American International Group Inc., and Burlington Northern Santa Fe led issuance of about $25 billion, down from $35.2 billion last week, according to data compiled by Bloomberg. Sales this year total $307 billion, below $344.9 billion sold in the similar period 2012.

Issuance declined as the House of Representatives passed a plan to avoid a shutdown and preserve new spending cuts, while the Senate will consider a measure next week to fund the government through September. Borrowers are facing “issuance fatigue” after selling a record $1.47 trillion last year, according to Edward Marrinan at RBS Securities.

“Issuers are taking a more measured approach due to political uncertainty and because they have already met many of their funding goals,” Marrinan, a Stamford, Connecticut-based macro credit strategist, said in a telephone interview. “These factors give issuers reason to step back and reassess.”

The extra yield investors demand to own corporate bonds rather than government debentures narrowed to 216 basis points yesterday from 221 basis points on March 1, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index.

Yields increased to 3.61 percent this week from 3.56 percent, and compare with a record low 3.52 percent on Jan. 23, index data show.

Sales of investment-grade debentures reached at least $19.9 billion, compared with $30.2 billion last week and a 2013 weekly average of $23.8 billion, Bloomberg data show.

Yields on investment-grade debt rose to 2.86 percent yesterday from 2.79 percent on March 1, increasing from a record low 2.73 percent on Nov. 8, according to the Bank of America Merrill Lynch U.S. Corporate Index. Spreads decreased 3 basis points to 146 basis points.

ILFC, which leases Airbus and Boeing planes, sold $1.25 billion of debt in its first offering this year, Bloomberg data show. The Los Angeles-based company’s $750 million of 3.875 percent, five-year securities yield 307 basis points more than similar-maturity Treasuries and $500 million of 4.625 percent, eight-year bonds pay a relative yield of 268.8 basis points.

Buffett’s Railroad

Burlington, the railroad that Warren Buffett’s Berkshire Hathaway Inc. bought in 2010, sold $1.5 billion of bonds in its first offering in more than six months, Bloomberg data show. The Fort Worth, Texas-based company’s $700 million of 3 percent, 10-year notes pay a relative yield of 110 basis points and $800 million of 4.45 percent, 30-year bonds pay a spread of 133 basis points.

Offerings of speculative-grade bonds reached at least $5 billion, matching last week’s total and compared with a 2013 weekly average of $7.6 billion, Bloomberg data show.

Junk debt yields fell to 6.49 percent yesterday from 6.56 percent on March 1, and compare with a record low 6.41 percent on Jan. 25, according to the Bank of America Merrill Lynch U.S. High Yield Index. Spreads narrowed 19 basis points to 481 basis points.

High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

Issuers planning sales include McGraw-Hill Education, the digital learning company being acquired by Apollo Global Management LLC, with a $1.05 billion offering of eight-year notes to help fund the purchase, Bloomberg data show.


Bloomberg News

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