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U.S. Corporate Bond Sales Rise for First Time in 4 Weeks on Recovery Signs
Sara Lee Corp., the maker of Ball Park hot dogs and Sunbeam Bread, helped lead at least $7.01 billion of corporate bond sales as issuance rose for the first time in four weeks amid signs the economic recovery’s on track.
The offerings, mostly by foreign borrowers, compare with $6.69 billion of debt issued last week and $15.5 billion in the five days ended Aug. 20, according to data compiled by Bloomberg. Last month’s sales of $102.4 billion were the most for any August since at least 1998.
Issuance rose as reports this week showed pending sales of previously owned homes in the U.S. unexpectedly rose in July and manufacturing in August expanded at a faster pace than forecast. That followed weaker-than-expected home sales last week and a revision showing the economy grew by 1.6 percent in the second quarter rather than the 2.4 percent initially reported by the Commerce Department.
“Instead of being uniformly poor this week, the economic indicators have been mixed,” said Jim Kochan, chief fixed- income strategist at San Francisco-based Wells Fargo Funds Management, which oversees $175.6 billion of debt assets. “As we get further into September and into the fall, you’re going to see very heavy issuance. At these borrowing costs, it is extremely attractive to sell bonds.”
The extra yield investors demand to own investment-grade debt instead of Treasuries rose 2 basis points to 193 basis points this week, according to Bank of America Merrill Lynch’s U.S. Corporate Master index. Absolute yields on investment-grade debt increased to 3.88 percent, the index data show. Yields fell to a record 3.74 percent on Aug. 24, the lowest in the measure’s history dating to October 1986.
‘Lot of Issuance’
“As long as yields are this low, we’re going to see a lot of issuance,” Kochan, who is based in Menomonee Falls, Wisconsin, said in a telephone interview.
U.S. stocks are poised to rise for the first week in four, and yields on 10-year Treasury notes, the market bellwether, fell. The Standard & Poor’s 500 Index gained the most since July on Sept. 1 as the Tempe, Arizona-based Institute for Supply Management said its factory index rose to a three-month high of 56.3 from 55.5 in July. Readings greater than 50 signal growth.
August bond sales were 42 percent higher than a year earlier, Bloomberg data show. That followed $90.3 billion of offerings in July, a record for that month, the data show. Issuance tapered off at the end of August, and for the last three weeks has been below this year’s $20.4 billion weekly sales average, Bloomberg data show.
Borrower ‘Fatigue’
“The last week and a half has been nothing other than fatigue from borrowers,” Justin D’Ercole, head of investment- grade syndicate for the Americas at Barclays Capital in New York, said in an Aug. 31 telephone interview. “There’s just been a lot of debt that was printed at the beginning of the month, so there hasn’t been as much need at the end.”
On Aug. 30, Sara Lee, based in Downers Grove, Illinois, sold $800 million of debt split evenly between five- and 10-year notes, according to data compiled by Bloomberg. Proceeds will be used with cash on hand and commercial paper issuance to help fund a tender offer for notes due in 2011, the company said in a prospectus.
Kreditanstalt fuer Wiederaufbau, Germany’s state-owned development bank, dominated issuance, selling $4 billion of 10- year dollar-denominated debt on Aug. 31, Bloomberg data show. Landwirtschaftliche Rentenbank, Germany’s development agency for agribusiness, was the week’s second-biggest issuer, offering $1.25 billion of seven-year global notes yesterday, the data show.
Junk Bonds
Investment-grade sales were $6.7 billion this week, and high-yield, high-risk issuance was $300 million, Bloomberg data show. High-yield, or junk, bonds are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.
Renhe Commercial Holdings Co., the developer of shopping centers in China, ended a drought of junk bond sales yesterday by issuing $300 million of 13 percent, six-year notes, Bloomberg data show. No high-yield companies had sold debt since Aug. 20 before the offering, the data show.
Spreads on high-yield, high-risk debt narrowed 9 basis points to 672 basis points, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Yields on the securities fell to 8.52 percent from 8.59 percent.
Titan International Inc., the maker of tires and wheels for off-highway vehicles, plans to sell debt this month or next to repay debt, Chief Financial Officer Paul Reitz said this week in a telephone interview. The Quincy, Illinois-based company plans to buy back $139.9 million of notes maturing in 2012, it said in a statement distributed by Business Wire on Aug. 31.
To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net
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