General Mills Sells Debt; Relative Yields Least Since July ’07

General Mills Inc. (GIS) sold its first dollar-denominated bonds in about a year as relative yields on investment-grade securities in the U.S. fell to the lowest level since before the start of the credit crisis in 2007. A measure of U.S. company credit risk increased.

General Mills issued $750 million of securities in two parts, including a $250 million floating-rate portion paying 20 basis points more than the three-month London interbank offered rate, according to data compiled by Bloomberg.

The cereal maker was joined by banks from JPMorgan Chase & Co. (JPM) to Morgan Stanley (MS) in offering $11.7 billion of bonds in what was the busiest day since Jan. 15, Bloomberg data show. The extra yield investors demand to own the notes instead of Treasuries fell 2 basis points last week to 123 basis points, the least since July 2007, the Bank of America Merrill Lynch U.S. Corporate Index shows.

“The backdrop for corporate bonds is good,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., which manages about $415 billion, said in a telephone interview. “The economy looks like it’s accelerating.”

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, added 0.3 basis point from Jan. 17 to 65.5 basis points as of 4:15 p.m. in New York, according to prices compiled by Bloomberg. The market was closed in the U.S. yesterday for the Martin Luther King Jr. Day holiday.

General Mills

The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

“When spreads are narrow, obviously it lowers the cost of potential debt, so in general, you’ll always see corporates come to market when spreads are tighter,” Valeri said.

General Mills also sold $500 million of 3.65 percent, 10-year notes to yield 85 basis points more than similar-maturity Treasuries, Bloomberg data show. The transaction was rated A3 by Moody’s Investors Service, the credit grader said in a statement. A portion of the proceeds will be used to repay commercial paper.

JPMorgan Offering

JPMorgan sold $5.25 billion of securities in five parts, including $1 billion of 4.85 percent, 30-year bonds to yield 112.5 basis points more than similar-maturity Treasuries, Bloomberg data show. Morgan Stanley issued $2 billion of 2.5 percent, five-year notes and $750 million of floating-rate securities, Bloomberg data show.

International investors are the most upbeat about the global economy than at any time in almost five years, buoyed by the U.S.-led revival of industrial nations, according to the Bloomberg Global Poll. On the eve of the World Economic Forum’s annual meeting in Davos, Switzerland, 59 percent of Bloomberg subscribers surveyed last week said the economic outlook is improving. That’s up from 33 percent in November and marks the most optimistic result since the poll began in July 2009.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, added 1 basis point to 318.7 basis points from Jan. 17, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at S&P. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 107.5, Bloomberg data show.

To contact the reporter on this story: Jessica Summers in New York at jsummers20@bloomberg.net

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

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