United Technologies Corp.'s $9.8 billion offering, the largest in more than three years, sent U.S. corporate bond sales higher last week even as speculative-grade issuance plummeted to 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 $1.9 billion, according to data compiled by Bloomberg. Hartford, Connecticut-based United Technologies, which last tapped the market more than two years ago, sold debt in six portions ranging from 18-month floating-rate notes to 30-year bonds.

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

“If Europe blows up, there's a flight of quality to single A corporate industrials,” Mark Pibl, head of credit strategy at broker-dealer Cortview Capital Securities LLC, said in a telephone interview.

The extra yield investors demand to own corporate bonds rather than similar-maturity Treasuries expanded 4 basis points from last week 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 2009 when Pfizer Inc. sold $13.5 billion of bonds in a five-part offering. Proceeds from the sale will be used to help fund the aerospace and building-system company's acquisition of Charlotte, North Carolina-based Goodrich Corp.

The company sold floating-rate debt that included $1 billion of 18-month notes yielding 27 basis points more than the London interbank offered rate, and $500 million of three-year debt yielding 50 basis points more than Libor.

It also sold $1 billion of 1.2 percent, three-year notes; $1.5 billion of 1.8 percent, five-year debt; $2.3 billion of 3.1 percent, 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 basis points as of yesterday, up 2 basis points from May 18 and below last year's high of 272 on Oct. 5, Bank of America Merrill Lynch index 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 1.875 percent coupon on its $400 million of seven-year debt matching a record low set by International Business Machines Corp. on May 8, the data show. It also issued three-year notes at 0.75 percent to yield 45 basis points more than similar-maturity Treasuries.

BlackRock Inc., the world's biggest asset manager, sold $750 million each of 1.375 percent, three-year notes on May 22 at a spread of 100 basis points and 3.375 percent, 10-year debentures at 165 basis points, the data show. The coupons were the lowest on record for three- and 10-year debt issued by the company.

Debt offerings were 14 percent below the $22 billion weekly average for the last 12 months, according to Bloomberg data. Global bond sales reached at least $57 billion, below the weekly average of $61 billion

High-yield, high-risk issuance dropped to the lowest weekly level since December, according to Bloomberg data. The biggest issuer in the market was NGPL PipeCo LLC which sold $550 million of 9.625 percent, seven-year notes with a 842 basis-points spread.

Yields reached 7.91 percent this week, the highest level since Jan. 31, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. High-yield, or junk, bonds are rated below Baa3 at Moody's Investors Service and lower than BBB- by Standard & Poor's.

“The high-yield market still offers a good amount of incremental yield,” Thomas Chow, a money manager at Delaware Investments in Philadelphia with about $170 billion under management, said in a telephone interview. “If you can select the right names you will be rewarded for it, but you just have to realize that there will be greater 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, as Germany's Chancellor Angela Merkel left the door open to a compromise on debt sharing. Italian Prime Minister Mario Monti said he can help bring Germany around to acting in Europe's “common good.”

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

American International Group Inc., the insurer majority owned by the U.S. government after a 2008 bailout, issued $750 million in debt as an auction of $1.7 billion of its assets was resumed by the Federal Reserve, the data show. The New York-based company sold 4.875 percent, 10-year bonds at a spread of 325 basis points, the data show. Citigroup Inc. bought the mortgage-tied securities from the Federal Reserve Bank of New York, the district bank said yesterday.

Bloomberg News

Instant Insights /

Corporate Bond Deals Up Last Week

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