Sales of corporate bonds in the U.S. fell 46 percent this week and relative yields widened for the first time this month as companies missed sales estimates and economists lowered their growth forecast for next year.
Reynolds American Inc. (RAI), the second-biggest U.S. tobacco company, and Houston-based Plains Exploration & Production Co. (PXP) led borrowers selling $24.1 billion, down from $44.3 billion last week, according to data compiled by Bloomberg. Offerings compare with a weekly average of $28.2 billion this year.
Concern mounted that the economy is wavering as 59 percent of Standard & Poor’s 500 companies that have reported third- quarter earnings missed analysts’ revenue estimates. Relative yields for U.S. investment-grade and high-yield bonds rose 1 basis point this week to 224 basis points through yesterday, Bank of America Merrill Lynch index data show.
“Top line growth is sort of a sticky point,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. With the swings in material costs, ‘it really has come down to how well companies can drive volume,” she said.
Growth in the U.S. is expected to slow to 2 percent next year, down from a 2.1 percent estimate in September, according to analysts surveyed this month by Bloomberg.
Spreads were poised to widen this week for the first time since the five days ended Sept. 28, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master index. Yields increased to 3.625 percent from an unprecedented low of 3.578 percent on Oct. 19.
Sales of investment-grade debentures reached at least $11.7 billion, compared with $31.5 billion last week and a 2012 weekly average of $21.6 billion, Bloomberg data show.
Reynolds raised $2.55 billion in its first bond sale in more than five years. The Winston Salem, North Carolina-based company sold $450 million of 1.05 percent, three-year notes at a relative yield of 70 basis points, $1.1 billion of 3.25 percent, 10-year securities at a spread of 150 basis points and $1 billion of 4.75 percent, 30-year debt at 190 basis points, Bloomberg data show.
The bonds due November 2022 rose 0.7 cent from the issue price to trade at 100.6 cents on the dollar for a yield of 3.18 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Yields on investment-grade debt increased to 2.817 percent yesterday from 2.766 percent Oct. 19, and compare with a record low 2.763 percent on Oct. 15, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Spreads increased 1 basis point to 148 basis points.
Offerings of speculative-grade bonds reached at least $12.4 billion, compared with $12.8 billion last week and a 2012 weekly average of $6.6 billion, Bloomberg data show.
Plains, the oil and gas producer acquiring assets from BP Plc and Royal Dutch Shell Plc, sold $3 billion of bonds to help fund the purchase. The company sold $1.5 billion each of 6.5 percent, eight-year debt at a relative yield of 509 basis points and 6.875 percent securities due February 2023 at a spread of 516 basis points, Bloomberg data show.
High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.
Yields on junk debt rose to 6.884 percent yesterday from 6.856 percent on Oct. 19, and compare with a record low of 6.843 percent reached on Oct. 18, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Spreads increased 2 basis points to 533 basis points.
Of the 273 companies in the S&P 500 that have reported third-quarter results, 59.3 percent missed analysts’ sales estimates, Bloomberg data show.
“The big ‘C’ and ‘E’ words, China and Europe, are really what’s creating this challenging environment,” Lurie said. “It’s causing a weakness in the equity markets and it’s translating over to the bond market.”
DuPont Co., the most valuable U.S. chemical maker, said it will eliminate about 1,500 jobs and posted a smaller profit than analysts estimated, while 3M Co. reduced its forecast amid recession in Europe and slowing Asia growth. Alfa Laval AB, the world’s largest maker of heat exchangers, said demand in the fourth quarter may be slow.
“It’s a bit of a wait-and-see with what happens with Spain, the U.S. election, the fiscal cliff and China,” Thomas Chow, a money manager at Delaware Investments in Philadelphia with about $170 billion under management, said in a telephone interview.
The so-called fiscal cliff refers to $607 billion in federal spending cuts and tax increases scheduled to take effect in January unless the U.S. Congress acts.
Corporate bonds have returned 10.3 percent this year, or 12.7 percent on an annualized basis, index data show.
Issuers planning sales include William Lyon Homes with a $300 million offering of eight-year debt, Bloomberg data show.
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