Tags: Junk | Debt | Corporate | Bond

Junk-Debt Boom Leads Corporate Bonds to Record Sales

Thursday, 05 Dec 2013 06:14 PM

Sales of dollar-denominated corporate bonds soared to a record for the second straight year, led by high-yield borrowers that rushed to offer debt before the Federal Reserve cuts back on its unprecedented stimulus.

Forest Laboratories Inc.’s $1.2 billion offering Thursday of 5 percent notes brought issuance of bonds from the riskiest to the most creditworthy companies to $1.480 trillion, eclipsing last year’s unprecedented $1.479 trillion, according to data compiled by Bloomberg. Speculative-grade sales of $359.2 billion surpassed the record $356.9 billion from 2012.

Bond buyers have been scooping up corporate debt as the central bank has held benchmark interest rates between zero and 0.25 percent for five years to revive the economy following the worst financial crisis since the Great Depression. Issuers have taken advantage of borrowing costs at all-time lows to offer deals of unprecedented size.

“When you look back at it, it won’t get much better than this year,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said in a telephone interview. “There was still a very persistent desire to lock in rates.”

Corporate bonds have lost 0.05 percent this year on the Bank of America Merrill Lynch U.S. Corporate & High Yield Index as speculation mounts that the central bank will begin to trim its monthly purchases of $85 billion of mortgage bonds and Treasurys.

 

Diverging Views

Wall Street is diverging on how much life is left for the high-yield rally, with JPMorgan Chase & Co., the largest underwriter of the securities this year, predicting a 5 percent return next year and Morgan Stanley seeing a gain of 2.8 percent.

While corporate treasurers will find a “robust” market for new high-yield issuance in 2014, sales are expected to slow to about $300 billion next year from an estimated $371 billion in 2013, JPMorgan analysts led by Peter Acciavatti in New York wrote in a report dated Nov. 27.

Borrowing costs at close to record lows have sent the default rate for U.S. speculative-grade debt to 2.5 percent in October from 3.6 percent a year earlier, Moody’s Investors Service said Nov. 11.

Sales Doubled

Sales of high-yield, high-risk debt, rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s, have more than doubled from $147.3 billion in 2007, Bloomberg data show. A 6.8 percent gain this year on the Bank of America Merrill Lynch U.S. High Yield Index follows average annual returns of 21.6 percent from the end of 2008 through last December.

“The numbers are stupendous and I’m not surprised we’ve had another record year,” Margie Patel, a money manager at Wells Fargo & Co. in Boston, said in a telephone interview. “Money is still so available in the high yield market and it’s a great time to borrow at these near all-time low rates.”

Investment-grade sales are also poised for back-to-back records, with 2013 issuance $1.3 billion shy of the $1.122 trillion in 2012, Bloomberg data show.

An eight-part $49 billion bond sale from Verizon Communications Inc. in September and Apple Inc.’s $17 billion issue in April were the two largest offerings on record, Bloomberg data show.

New York-based Forest Laboratories’ eight-year notes, rated Ba1 by Moody’s and an equivalent BB+ at S&P, the highest levels of speculative grade, priced to yield 225 basis points more than similar-maturity Treasuries, Bloomberg data show.

JPMorgan is the largest underwriter of U.S. company bonds for the fourth straight year, with an 11.8 percent market share, according to Bloomberg data that excludes self-led deals. The biggest U.S. bank by assets was followed by Bank of America Corp., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. The rankings are unchanged from 2012.

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Sales of dollar-denominated corporate bonds soared to a record for the second straight year, led by high-yield borrowers that rushed to offer debt before the Federal Reserve cuts back on its unprecedented stimulus.
Junk,Debt,Corporate,Bond
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2013-14-05
Thursday, 05 Dec 2013 06:14 PM
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