JPMorgan’s $4 billion offering included the first 30-year bonds from a U.S. bank in 15 months, according to data compiled by Bloomberg. Waltham, Massachusetts-based Raytheon sold $2 billion in a three-part transaction as it sold securities for the first time since November 2009, Bloomberg data show.
Companies sold $22.7 billion of debt, compared with $22.6 billion last week, as issuance this month trails September’s record pace and that of the similar period a year ago. Credit quality may be near a peak for non-financial U.S. companies and may decline if firms begin to use the cash raised for expansion, according to Moody’s Investors Service.
“At these prices, there are embedded risks of a change in market psychology,” said William Larkin, who helps manage $500 million at Cabot Money Management in Salem, Massachusetts. “We’ve had such huge returns in the corporate bond market that it’s led to a herd mentality.”
Investment-grade corporate bonds have returned 10.9 percent this year after gaining 19.8 percent in 2009, according to Bank of America Merrill Lynch Index data. High-yield, high-risk company debt’s 13.5 percent gain this year follows its 57.5 percent climb a year ago, the index data show.
Sales this week compare with $28 billion during the five- day period ended Oct. 16, 2009, Bloomberg data show. Companies issued $48.4 billion of debt this month, compared with $76.5 billion in the corresponding portion of September and $47.2 billion in the first 15 days of October 2009.
Companies issued $161.1 billion of debt in September, the most on record for that month, Bloomberg data show.
The extra yield investors demand to own high-yield bonds instead of Treasuries fell 2 basis points to 595 basis points on Oct. 15 and was down from 612 basis points on Oct. 8, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Yields on the debt decreased to 7.77 percent from 7.85 percent last week.
High yield debt is rated below Baa3 by Moody’s and BBB- by Standard & Poor’s. A basis point is 0.01 percentage point.
Spreads on speculative-grade debt signaled a 20 percent chance the U.S. economy would slip back into recession, according to Martin Fridson, New York-based global credit strategist at BNP Paribas Asset Management.
Yields on the 30-year Treasury bonds rose to the highest since Aug. 10 as investors wagered the Federal Reserve may buy shorter-term debt to stimulate the economy. Fed policy makers were prepared to ease credit “before long” and focused on purchases of Treasuries and boosting inflation expectations, according to minutes of the central bank’s Sept. 21 session.
“Economic indicators continued to issue mixed signals, but investors increasingly have come to believe that quantitative easing by the Fed will avert an economic collapse,” Fridson said.
Investment-grade spreads widened 1 basis point in the week to 182 basis points, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. Yields climbed 12 basis points to 3.68 percent, the index data show.
JPMorgan, second in assets to Bank of America Corp. among U.S. banks, sold $2.75 billion of 10-year notes and $1.25 billion of bonds due in October 2040, Bloomberg data show. It was the first offering of 30-year debt by a U.S. bank since Citigroup sold $2.5 billion in July 2009.
The sale came after New York-based JPMorgan said third- quarter profit rose 23 percent, beating analyst estimates, as provisions for bad loans declined.
Raytheon, JPMorgan and Reliance Industries Ltd., India’s most valuable company, led $15.5 billion of investment-grade bond issuance, compared with average weekly sales of $16.7 billion in 2010, Bloomberg data show.
Sirius XM Radio Inc., the New York-based satellite radio broadcaster, sold $700 million of eight-year notes and Manitowoc Co., the world’s biggest manufacturer of overhead cranes, issued $600 million of 10-year debt as junk-rated companies raised $7.3 billion, Bloomberg data show.
Speculative-grade corporate bond sales have fallen for four consecutive weeks since reaching $13.7 billion during the period ended Sept. 17.
Corporate credit quality may decline as companies take advantage of record-low yields on their debt to pay for share repurchases and acquisitions, Mark Gray and Thomas Marshella, Moody’s managing directors, wrote in an Oct. 12 report.
‘Appetite for M&A’
“You’ve had a lot of companies extend maturities, reduce their cost of borrowing by going into the public markets,” said Douglas Braunstein, JPMorgan’s chief financial officer, in a conference call with investors on Oct. 13. “You’re starting to see a pickup in the appetite for M&A, and I think part of that is a function of people getting their balance sheets prepared and ready to go and looking for growth.”
Air Medical Group Holdings Inc., a provider of emergency transportation services, and Texas Competitive Energy Holdings Co., the Energy Future Holdings Corp. unit, are among companies planning at least $3 billion in U.S. bond sales, Bloomberg data show.
To contact the editor responsible for this story: Alan Goldstein at firstname.lastname@example.org.