U.S. Investment-Grade Bond Sales Reach Record $1.125 Trillion

Sales of investment-grade corporate bonds in the U.S. reached an all-time high for a second straight year as issuers took advantage of borrowing costs that touched record lows to offer deals of unprecedented size.

Deere & Co. (DE)’s $1.25 billion offering today sent sales for the year to $1.125 trillion, exceeding the $1.122 trillion in 2012, according to data compiled by Bloomberg. Last week, dollar-denominated high-yield offerings also reached an annual record, pushing U.S. corporate bond sales to the most ever.

Borrowers from Apple Inc. (AAPL) to Verizon Communications Inc. (VZ) tapped the bond market for the largest offerings with this year’s average yields of 3.11 percent almost 1.8 percentage points below the decade mean, Bank of America Merrill Lynch index data show. Yields have climbed from a record low 2.65 percent in May as concern mounts that the Federal Reserve is poised to curtail stimulus that’s bolstered credit markets since the end of 2008.

“The main driver was for issuers to lock in low absolute yields,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said in a telephone interview. Borrowers tried “to get ahead of the Fed and the uncertainty over tapering. The Fed gave them more time and that probably incentivized more borrowing.”

Issuers have been rushing to the market as speculation grows that interest rates will rise further as the central bank begins to curtail $85 billion of monthly purchases of mortgage bonds and Treasuries. The share of economists in a Bloomberg survey predicting the central bank will reduce its bond buying in December doubled to 34 percent after the unemployment rate fell last month to a five-year low.

Annual Loss

The extra yield investors demand to own investment-grade corporate bonds in the U.S. rather than government debentures reached 138 basis points yesterday, the least since August 2007, according to the Bank of America Merrill Lynch U.S. Corporate Index. Yields of 3.33 percent as of yesterday have declined from this year’s high of 3.67 percent in September.

Investment-grade debt, rated Baa3 or higher by Moody’s Investors Service and at least BBB- at Standard & Poor’s, has lost 1.6 percent this year, following returns of 9.7 percent in 2012 on the Bloomberg USD Corporate Bond Index. (BUSC)

The debt sale by John Deere Capital, the financing arm of the largest maker of agricultural equipment, included $750 million of 1.95 percent, five-year bonds paying 55 basis points more than similar-maturity Treasuries, Bloomberg data show. Its $500 million of 1.05 percent, three-year notes sold in October paid a spread of 42 basis points.

JPMorgan Chase & Co. is the largest underwriter of U.S. investment-grade company bonds for the sixth straight year, with a 12 percent market share, according to Bloomberg data that excludes self-led deals. The biggest U.S. bank by assets was followed by Bank of America Corp., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc., with the top five spots swept by U.S. banks for the first time since 2009.

To contact the reporter on this story: Sarika Gangar in New York at sgangar@bloomberg.net

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

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