Demand Propels Corporate Bond Issuance
Demand Propels Corporate Bond Issuance To Continue Wednesday
NEW YORK – The new-issuance market for high-grade corporate bonds is seeing a decent follow up Wednesday after $9.35 billion was priced in a robust start to the shortened week Tuesday.
Five issuers are shopping for buyers, led by a benchmark-size, three-year issue from Citigroup (C), and a $1.5 billion deal from Deere & Co (DE), which recently added a third tranche of floating-rate notes to its sale of five- and 10-year notes.
As with Tuesday, the equity and secondary bond markets are flat or in retreat, but all signs point towards a healthy new-issue market. Investors favor new-issues because they are easily tradable and can be bought in large quantities.
“We are definitely still seeing demand,” said a syndicate manager in New York, who characterized conditions as favorable for three or four weeks now. “At the end of the day, where are you going to pick up yield? The high-grade market has become the flight to quality.”
Bond yields are near record lows as the Federal Reserve plans to keep interest rates at basement levels through 2014, allowing companies to attain some of the cheapest financing ever.
Recent demand for corporate bonds reduced their spread, or extra yield over Treasurys, to 1.907 percentage points, the lowest since August 12, 2011, according to the Barclays Capital Corporate Investment-Grade Index on Tuesday.
Among smaller deals Wednesday, Marriott International enlarged the size of its seven-year offering by $50 million to $400 million. The notes, which mature March 1, 2019, offer investors 1.75 percentage points over the Treasury rate.
Alexandria Real Estate Equities, a real estate investment trust, plans to sell $500 million of 10-year bonds offering around 2.65 percentage points over Treasurys.
Lastly, Sumitomo Mitsui Banking Corp. is seeking to price a 10-year subordinated bond offering around 2.85 percentage points over Treasurys.
The syndicate manager said austerity-implementation risks in Greece may lead to renewed uncertainties, so his message to companies is to issue bonds now while demand is strong. “With Greece getting a pass for about a month until their elections, get in now; markets are stable. If you can finance now, do it. We probably have a few weeks of decent stability.”
Markit’s CDX North America Investment-Grade Index, a measure of health in the U.S. corporate-bond market, had weakened 1% in the early afternoon, returning it to Friday’s levels after an improvement Tuesday.