Sales of U.S. corporate bonds rose for the second straight week, the first back-to-back gain in three months, as borrowers took advantage of tightening relative yields.
AT&T Inc. (T), the largest U.S. phone company, and Louisville, Colorado-based Zayo Group LLC led borrowers issuing $17.4 billion, a 6 percent increase from the five days ended June 8, according to data compiled by Bloomberg. The extra yield investors demand to hold corporate debt rather than Treasuries with similar maturities narrowed 3 basis points this week through yesterday to 315 basis points, or 3.15 percentage points, according to Bank of America Merrill Lynch’s U.S. Corporate & High Yield Master index.
Symantec Corp. joined AT&T as sales reached $6.9 billion on June 11, the busiest start to a week in more than two months. While issuers rushed to the market on growing optimism that financial contagion can be contained following Spain’s request for a 100 billion euro ($126 billion) bank bailout, the pace slowed in advance of elections on June 17 in Greece that may determine the future of the euro zone.
“Issuers are being very opportunistic,” said James Kochan, chief fixed-income strategist in Menomonee Falls, Wisconsin, at Wells Fargo Fund Management LLC. That means “coming to market as quickly as they can” in strong conditions and holding off if the environment becomes less favorable, he said.
Offerings last rose for two straight weeks in the period ended March 9, when sales soared to a record $60.1 billion, Bloomberg data show.
Italy’s borrowing costs surged yesterday at its first bond auction since Spain’s bank rescue request, putting more pressure on European leaders to step up their response to the debt crisis. The Treasury sold 4.5 billion euros of debt, including 3 billion euros of its three-year benchmark bond to yield 5.3 percent, the highest yield since December.
In Greece, the vote will turn on whether residents, in a fifth year of recession, accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk the turmoil of becoming the first to exit the 17-member currency. World leaders have said they’d prefer a pro-euro result, underscoring concern that the region’s crisis will infect markets globally.
“We’ve just been rotating among these European names,” Thomas Chow, a money manager at Delaware Investments in Philadelphia with about $170 billion under management, said in a telephone interview. “We’re really substituting Ireland for Greece, Greece for Portugal, Portugal for Spain. And the next name on the block is Italy.”
Investment-grade sales fell this week, with borrowers issuing $15.7 billion of notes, after $16 billion in the previous week, Bloomberg data show.
Spreads fell 1 basis point this week to 225 basis points through yesterday, according to the Bank of America Merrill Lynch U.S. Corporate Master index. A basis point is 0.01 percentage point. Yields dropped to 3.44 percent from 3.46 percent on June 8.
Dallas-based AT&T issued $1.15 billion of 1.7 percent, five-year bonds to yield 105 basis points more than Treasuries and $850 million of 3 percent, 10-year debt, a reopening, with a 135 basis-point spread, Bloomberg data show.
The notes due June 2017 rose 0.1 cent from the issue price to 99.92 cents on the dollar as of yesterday to yield 1.72 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Symantec (SYMC), the world’s biggest seller of security software, offered $600 million of 2.75 percent, five-year notes at a relative yield of 210 basis points and $400 million of 3.95 percent, 10-year bonds at 245 basis points, Bloomberg data show.
Issuance by speculative-grade borrowers recovered, with sales of $1.7 billion boosted by Zayo’s $1.25 billion offering, Bloomberg data show. Sales compare with $392 million last week.
The sale yesterday from the Internet connectivity provider was the largest in a month for a high-yield issuer, with proceeds to be used for its acquisition of AboveNet Inc. (ABVT)
Zayo sold $750 million of 8.125 percent senior secured notes due January 2020 to yield 698 basis points more than similar-maturity Treasuries and $500 million of 10.125 percent senior debt due July 2020 at a spread of 883 basis points, Bloomberg data show.
Spreads on speculative-grade bonds declined 10 basis points this week to 685 basis points, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Yields fell to 8.08 percent from 8.16 percent on June 8.
Issuers in the pipeline include Engility Corp. and PF Chang’s China Bistro Inc., which is selling $300 million of debt to help finance its acquisition by Centerbridge Partners LP, Bloomberg data show.
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