Investment-grade companies are issuing copious amounts of bonds, as they seek to take advantage of low interest rates and as investors look for alternatives to a stock market that has gained little so far this year.
Highly rated companies issued $317 billion of bonds in the United States during the first quarter. That's the second-highest quarterly figure since Dealogic began tracking the data in 1995, topped only by the first quarter of 2009,
The Wall Street Journal reports.
Borrowers included technology stalwarts IBM, which issued $4.5 billion, and Cisco Systems, which issued $8 billion. Cisco's was the second-biggest investment-grade bond ever for a tech company, trailing only Apple, according to The Journal.
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"We were pleased with the strong interest in our bonds," a Cisco spokeswoman tells the paper. "High-quality technology bonds provide good [sector] diversification benefits for investors."
High-grade U.S. corporate bonds generated a total return of 2.94 percent in the first quarter, according to Barclays. That easily beat The S&P 500's total return of 1.81 percent.
The first quarter was a good one for bonds overall, with the Barclays Aggregate index rising 1.84 percent. But don't expect it to continue a lot longer, says, Anthony Valeri, fixed-income strategist at LPL Financial.
"The pace of bond performance is unsustainable," he writes in a commentary obtained by
Barron's. "Simple math would put the current pace on track for a high-single-digit return for the full year, a very difficult achievement for a still-low-yield environment."
A pause in the Federal Reserve's tapering of bond purchases or evidence of further economic weakness would probably be necessary to drive high-quality bond prices higher, Valeri explains. And the probability of that is low, he said.
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