Home Depot, Dell Drive Issuance to Highest in Seven Months: Credit Markets
Home Depot, Dell Drive Issuance to 7-Month High
Dana Mixer/Bloomberg
Home Depot Inc., Dell Inc. and Burlington Northern Santa Fe LLC led the busiest day for U.S. corporate bond issuance in more than seven months as investment-grade borrowing costs hover near the lowest on record.
Home Depot Inc., Dell Inc. and Burlington Northern Santa Fe LLC led the busiest day for U.S. corporate bond issuance in more than seven months as investment-grade borrowing costs hover near the lowest on record. Photographer: Dana Mixer/Bloomberg
Home Depot Inc., Dell Inc. and Burlington Northern Santa Fe LLC led the busiest day for U.S. corporate bond issuance in more than seven months as investment- grade borrowing costs hover near the lowest on record.
Companies sold $15.4 billion of the debt as yields fell to 3.83 percent yesterday and reached as low as 3.74 percent on Aug. 24, according to Bank of America Merrill Lynch’s U.S. Corporate Master index. Hewlett-Packard Co. and American Express Co. lead borrowers marketing at least $14.7 billion of corporate bonds today, according to data compiled by Bloomberg.
U.S. investment-grade sales are soaring following signs last week the economy won’t slip back into a recession. Private payrolls climbed more than economists expected and pending home sales rose from a record low, even as the unemployment rate rose to 9.6 percent last month. Treasury yields are rising from this year’s low on Aug. 25.
Yields on investment-grade debt are “probably as low as they’re going to get,” said Anthony Valeri, a market strategist in San Diego at LPL Financial Corp., which oversees about $277 billion of assets. “This level is an ideal trade-off of investors recognizing the fundamentals of a slow-growth economy are OK for corporate bonds.”
Atlanta-based Home Depot, the largest-home improvement retailer, sold $1 billion of debt due in 10 and 30 years in its first offering since December 2006, Bloomberg data show.
Dell, Burlington
Round Rock, Texas-based Dell, the third-biggest personal computer maker after Hewlett-Packard and Acer Inc., raised $1.5 billion in a three-part sale.
Burlington Northern, the Fort Worth, Texas-based railroad company acquired this year by Warren Buffett’s Berkshire Hathaway Inc., sold $750 million of debt in a two-part offering, Bloomberg data show.
Issuance may set a record for the week and month, said Tom Murphy, a money manager who helps oversee more than $25 billion of investment-grade credit at Columbia Management in Minneapolis.
“You’re seeing people definitely want to be invested in the market and definitely put money to work,” Murphy said. “The first week after Labor Day is considered the beginning of the push toward the end of the year.”
Elsewhere in credit markets, the extra yield investors demand to own company debt instead of similar-maturity government bonds was unchanged at 178 basis points, or 1.78 percentage points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. Yields averaged 3.516 percent, down from 3.585 percent.
Default Rate
The global default rate on high-yield, or junk, debt will fall to 2.7 percent by the end of this year before dropping to 2 percent a year from now, Moody’s Investors Service said today in a report.
Defaults worldwide declined to 5 percent in August from 5.5 percent in the previous month, according to Moody’s. A year ago, the rate was at 12.3 percent. High-yield debt is rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s.
The cost of protecting corporate bonds in the U.S. from default fell, with the Markit CDX North America Investment Grade Index Series 14 declining 1.48 basis points to a mid-price of 105.58 basis points as of 1:29 p.m. in New York, according to Markit Group Ltd. The index typically falls as investor confidence improves and rises as it deteriorates.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
‘Very Inexpensive’ Money
U.S. corporate borrowers are taking advantage of yields to raise “very inexpensive” money, said Zane Brown, fixed-income strategist at Lord Abbett & Co. in Jersey City, New Jersey.
“It reflects investors’ preference for risk and companies that want to take advantage of low absolute levels on yields,” said Brown, who helps oversee $53 billion of debt.
The 10-year Treasury note yield rose 6 basis points, or 0.06 percentage point, to 2.66 percent at 10:50 a.m. in New York, according to BGCantor Market Data. The price of the 2.625 percent security maturing in August 2020 dropped 15/32, or $4.69 per $1,000 face amount, to 99 3/4.
U.S. investment-grade issuance yesterday was the most since $17.6 billion on Feb. 4, Bloomberg data show. There was one sale of high-yield debt as Richardson, Texas-based MetroPCS Communications Inc. issued $1 billion of notes due in 2018. It was the third-busiest day for corporate bond issuance this year with $16.4 billion of sales.
Companies sold $10.1 billion of dollar-denominated debt on the day following the Labor Day holiday last year, and $29.7 billion of notes in that week, Bloomberg data show.
‘Stay Very Busy’
Pending sales of existing houses unexpectedly climbed in July from a record low, figures from the National Association of Realtors showed Sept. 2. The index of purchase contracts rose 5.2 percent after a revised 2.8 percent drop the prior month.
Companies in the U.S. added more jobs than economists forecast in August, Labor Department figures in Washington showed Sept. 3. Private payrolls climbed 67,000 after a revised 107,000 increase in July.
“It’s going to stay very busy as long as the markets are this receptive to new issuance,” said Jim Kochan, the chief fixed-income strategist at Wells Fargo Funds Management, which oversees $175.6 billion of debt assets. “It’s been extremely busy on a trend basis all year, as yields kept coming down.”
New York-based American Express doubled the size of its planned offering of five-year notes to $2 billion, according to a person familiar with the offering. The debt from a unit of the financial-services company may pay a spread of 143 basis points, said the person, who declined to be identified because terms aren’t set.
Hewlett-Packard, based in Palo Alto, California, plans to sell $3 billion of senior unsecured debt in a three-part benchmark offering as soon as today, a person familiar with the transaction said. The company plans to issue two-year floating- rate notes and three-and five-year fixed-rate debt, said the person, who declined to be identified because terms aren’t set.
To contact the reporters on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net; Tim Catts in New York at tcatts1@bloomberg.net
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