Published February 07, 2012Dow Jones Newswires
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NEW YORK – High-grade corporate bond issuance was a little subdued Tuesday as just three sizeable issuers took advantage of cheap financing in the U.S. credit markets, while in secondary trading, yields on the Barclays Capital investment-grade corporate bond index were close to hitting a record low.
Demand for corporate bonds has been on fire in recent weeks as investors have been encouraged by strong domestic data, fewer bad news items from Europe and a Federal Reserve policy of keeping benchmark Treasury rates at basement levels.
Chief among borrowers hoping to take advantage of continued demand Tuesday was Noble Holding International Ltd., a worldwide contract drilling services company. It sold a $1.2 billion, three-tranche deal featuring $300 million of five-year bonds priced at a spread over Treasurys of 170 basis points, $400 million of 10-year bonds at a 200-basis-point spread, and $500 million of 30-year bonds with a 215-basis-point spread.
Abu Dhabi-based Dolphin Energy priced $1 billion of 10-year bonds with a yield of 5.50%, or 352 basis points over Treasurys. New York Life Global Funding, a subsidiary of New York Life Insurance Co., sold $600 million of five-year bonds priced at 1.686%, or 88 basis points above the Treasury rate.
The $2.8 billion from the three sales bring February issuance past the $30 billion mark, according to data provider Dealogic. In February 2011, $60.5 billion was priced all month long.
The potential for issuance to continue surging is strong as companies seek to refinance debt at extremely low cost.
The Barclays index only needs a slight nudge to hit a record-low yield. The index finished Monday at 3.37% -- a six-month low and just one basis point away from the all-time low set on Aug. 4, 2011. The index dates back to 1973.
One corporate bond trader said he hopes the index doesn't improve further because such low yields make it tough to entice buyers and move paper.
"That's one reason financial bonds continue to get lifted higher," he said. "It's the only place investors can go to grab yield."
In the absence of much U.S. data or news, the corporate bond market failed to move much Tuesday as headlines focused on Greece's need to implement austerity measures.
Though equities finished the day higher, Markit's CDX North America Investment-Grade Index, a measure of health for the corporate bond market, had deteriorated 0.1% as of 4:10 p.m. EST.
Individual bond trading was mixed, according to MarketAxess. The three most actively-traded bonds all worsened on the day, relative to Treasurys: Rabobank Nederland and Goldman Sachs Group (GS) 10-year bonds have widened seven basis points and two basis points, respectively, and Citigroup (C) five-year bonds due 2013 deteriorated 21 basis points.
Other actively traded bonds remain in rally mode: Bank of America Corp. (BAC) bonds due 2018 and 2022 have improved 11 basis points and two basis points, respectively, versus Treasurys. Thirty-year bonds from AT&T Inc.(T) tightened one basis point Tuesday, contributing to a 19-basis-point improvement over the week.
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