U.S. Corporate Borrowing Costs Fall To Record Below 4%

Yields on U.S. corporate bonds of all ratings fell below 4 percent for the first time as Europe’s sovereign-debt crisis boosts demand for U.S. assets deemed safer even with a slowing economic recovery.

Average borrowing costs for companies from General Electric Co. (GE) to junk-rated Sprint Nextel Corp. (S) dropped yesterday to an unprecedented 3.98 percent for investment- and speculative-grade debt, from 4.02 percent on July 17, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master index. The gauge was at 4.81 percent at year-end and 4.59 percent a year ago, the index data show.

Yields are declining as European policy makers struggle to resolve a more than two-year-old debt crisis that’s pulled Spain and Greece into recession and as the Federal Reserve keeps its benchmark interest rate near zero to boost economic growth that increased at a 1.9 percent pace in the first quarter.

“The bond market is more focused on trying to find secure assets that offer some value,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. Investors “want to make sure that they’re protected against anything that’s going to happen in Europe,” and dollar-denominated corporate debt offers an alternative, she said.

The extra yield investors demand to own the bonds instead of government securities has dropped 14 basis points this month to 2.85 percentage points yesterday, the narrowest since May 10.

Average borrowing costs on U.S. investment-grade bonds fell to a record low 3.096 percent yesterday, compared with 3.37 percent at the end of June, the index data show. High-yield debt, rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, is yielding 7.66 percent, the least since May.

To contact the reporter on this story: Charles Mead in New York at cmead11@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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