Corporate Bond Offerings in U.S. Fall as Relative Yields Widen

Sales of corporate bonds in the U.S. fell to their lowest since the beginning of the year as relative yields increased for the first time in 11 weeks.

Anheuser-Busch InBev NV (ABI) to General Mills Inc. (GIS) led $26.3 billion of offerings this week, the least since $552.1 million in the five days ended Jan. 3, according to data compiled by Bloomberg. Sales of $118.1 billion this month are 18 percent less than the $143.8 billion in the similar period of 2013, which was the busiest January on record.

Issuance fell as the extra yield investors demand to own U.S. corporate bonds from the riskiest to the most creditworthy borrowers rather than government debentures rose on the week for the first time since November, increasing from a more than six-year low. A gauge of company credit risk in the U.S. climbed this week by the most since June, as a private survey showed that Chinese factory output may contract this month.

“What’s going on in China and emerging markets reminds investors that there is risk out there,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., which manages about $415 billion, said in a telephone interview. “Corporates had a really strong start to the year and investors pushed back.”

Spreads widened to 183 basis points yesterday from 181 basis points on Jan. 17, the first weekly increase since the five days ended Nov. 8, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index. Yields decreased to 3.85 percent from 3.87 percent.

AB InBev

AB InBev, the world’s biggest brewer, sold $5.25 billion of bonds in six parts to help fund its purchase of South Korea’s Oriental Brewery Co., Bloomberg data show. The largest piece, $1.4 billion of 3.7 percent, 10-year debt, priced with a relative yield of 85 basis points.

General Mills, the maker of Cheerios cereal, issued $750 million of securities in two parts in its first dollar-denominated bonds in about a year, Bloomberg data show. The deal included a $250 million floating-rate portion that paid 20 basis points more than the three-month London interbank offered rate.

Sales of investment-grade debentures reached at least $24.9 billion, down from $43.2 billion last week, and offerings of speculative-grade bonds were about $1.4 billion, falling from $11.3 billion last week.

High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, jumped 7.1 basis points this week to 72.3 basis points as of 11:44 a.m. in New York, according to prices compiled by Bloomberg. The increase was the biggest since a 9.9 basis point rise in the week ended June 21.

The measure typically rises as investor confidence deteriorates and falls as it improves.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.