Gold Drops to $1,200/oz for First Time Since June in New York
Watson Leading U.S. Issuance Bolsters Busiest Month Since March
Corporate issuers from Watson Pharmaceuticals Inc. (WPI) to United Parcel Service Inc. (UPS) are leading $26 billion in bond sales in the U.S. this week, capping the busiest month since March as borrowing costs reach record lows.
Sales for 2012 from the most creditworthy to the riskiest companies surpassed the $1 trillion mark this month, an unprecedented level for the January-through-September period, with issuance on pace for a record year, according to data compiled by Bloomberg.
Issuers are exploiting demand for company securities as investors reach for riskier assets with the Federal Reserve expanding stimulus measures and saying it will probably hold interest rates near zero through at least mid-2015. While U.S. corporate yields fell to a record 3.71 percent this week, the extra yield versus Treasuries is at about a 15-year average.
“Investment options that used to provide a half-decent return have disappeared, so investors are turning to corporate bonds,” William Larkin, a fixed-income money manager at Cabot Money Management Inc. in Salem, Massachusetts, said in a telephone interview. “All the treasurers working for these big companies are saying, ‘Let’s take advantage of this rate environment.’”
Issuance of $167 billion in September is the most since companies from DirecTV (DTV) to LyondellBasell Industries NV (LYB) sold $169 billion of bonds in March, Bloomberg data show. Offerings this week dropped 47 percent from $48.7 billion in the five days ended Sept. 21, and compare with average weekly sales of $27.4 billion this year.
Borrowings of $366 billion since June have propelled issuance to an unprecedented pace that’s set to exceed the record $1.24 trillion of bond sales in 2009.
That surge in supply hasn’t dissuaded debt investors. Yields on U.S. corporate debt have declined 13 basis points this month to 3.713 percent yesterday, according to Bank of America Merrill Lynch index data. The extra yield of 249 basis points that investors demand to own corporate securities compares with an average of 252 since 1996.
Watson, the generic-drug maker that agreed to buy Actavis Group hf for 4.25 billion euros ($5.5 billion) in April, raised $3.9 billion yesterday in a three-part bond offering to help finance the deal.
UPS, the world’s largest package-delivery company, raised $1.75 billion with five-, 10- and 30-year securities on Sept. 24 to refinance maturing debt, the company’s first bond sale in almost two years. The bonds had all gained from their issue prices as of yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Frontier Communications Corp. (FTR), the junk-rated telephone, Internet and television provider based in Stamford, Connecticut, helped lead $5.4 billion of speculative-grade issuance this week by selling an additional $250 million of its 7.125 percent debt due in 2023 at 104.25 cents on the dollar, above its original par price in August, Bloomberg data show.
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