Hewlett-Packard Co. (HPQ)’s largest-ever bond sale helped push corporate debt issuance in the U.S. to $40.4 billion, above this year’s weekly average for the third consecutive period.
Hewlett-Packard, the biggest personal-computer maker, sold $5 billion of notes in a five-part offering, while Caterpillar Inc. (CAT) issued $4.5 billion of bonds and Barrick Gold Corp. (ABX) raised $4 billion, according to data compiled by Bloomberg. High-yield bond sales reached a monthly record of $44.5 billion in May, surpassing the previous high of $39.6 billion in March 2010.
Companies are taking advantage of borrowing costs at about the lowest on record to refinance debt, extend maturities and pay for acquisitions. Investors are gaining confidence that borrowers including Palo Alto, California-based Hewlett-Packard can withstand a slowing recovery in the U.S. and a worsening sovereign debt crisis in Europe.
“There’s no real catalyst to halt the speed of offerings,” said Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York. “People think the economy may regain traction in the second half, and what’s going on in Europe won’t affect corporate balance sheets here.”
Yields on investment-grade corporate bonds declined this week to 3.72 percent from 3.77 percent, according to the Bank of America Merrill Lynch U.S. Corporate Master index. They fell to a record low of 3.51 percent on Nov. 4, the index data show.
The extra yield investors demand to own the debt instead of Treasuries widened 4 basis points, or 0.04 percentage point, to 154 basis points from 150 basis points on May 20, Bank of America Merrill Lynch index data show. Investment-grade spreads have widened since narrowing to 145 basis points on April 11, the least this year, as Treasury yields plunged.
Corporate bond issuance this week compares with a 2011 average of $30.3 billion and a record $54.8 billion in the period ended May 20, Bloomberg data show.
Profits for companies in the Standard & Poor’s 500 Index may reach $104.73 a share in the next 12 months as consumer demand drives sales up 13 percent, according to data from about 9,000 analysts compiled by Bloomberg. The income estimate rose 2.8 percent in the four weeks ended May 2, the most in a year.
“We’ve witnessed pretty strong earnings growth,” said Gregory Peters, Morgan Stanley’s global head of fixed-income research, in a May 25 interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “We’re not willing to give up yet. We think the recovery is too young to die.”
Consumer spending, which accounts for the biggest part of the U.S. economy, grew at a 2.2 percent annual rate in the first quarter, according to Commerce Department data, less than the 2.8 percent median forecast of economists surveyed by Bloomberg. Spending will probably be “somewhat restrained going forward,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.
The cost to insure Greek debt against default rose to a record this week and the yield on the nation’s two-year and 10- year debt climbed the most since the euro’s 1999 introduction as investors lost confidence the country will be able to meet its obligations.
Hewlett-Packard sold $2.25 billion of two- and three-year floating-rate securities and $2.75 billion of three-, five- and 10-year fixed rate notes, Bloomberg data show. Proceeds will be used to pay back $1.75 billion of debt maturing today and for general corporate purchases, including repaying short-term IOUs, according to a filing with the Securities and Exchange Commission.
Proceeds from Barrick Gold’s offering will help finance its acquisition of Equinox Minerals Ltd., while Caterpillar issued debt to help pay for its purchase of Bucyrus International Inc. Investment-grade companies issued $30.5 billion of bonds this week, Bloomberg data show.
Junk-rated companies from General Motors Financial Co. to Level 3 Communications Inc. (LVLT) sold $9.86 billion of debt, Bloomberg data show. Yields on the bonds climbed to 7.23 percent after falling to a record low 7.19 percent last week, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Spreads widened 19 basis points to 501 basis points, the index data show.
This year’s corporate bond issuance of $647.1 billion compares with $440.3 billion during the same span in 2010, Bloomberg data show.
“At the end of the year, I think investment-grade issuance will finish well ahead of 2010 and high-yield will do really well, too,” Miller Tabak’s Miller said. “We should see a very active June as well.”
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