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Corporate Bond Sales Drop 30% as Yellen Signals Gradual Tapering

Sales of corporate bonds in the U.S. fell 30 percent this week and relative yields narrowed as newly appointed Federal Reserve Chairman Janet Yellen pledged to maintain her predecessor’s policies by scaling back the central bank’s unprecedented stimulus in “measured steps.”

Capital One Financial Corp. (COF), the bank that gets more than half its revenue from credit cards, and New York-based CIT Group Inc. led offerings of $20.1 billion, down from $28.6 billion last week, according to data compiled by Bloomberg. Offerings were the least since $19.1 billion in the five days ended Jan. 31 and compare with a weekly average of $28.6 billion over the past year.

Issuance declined after a government report released Feb. 7 showed joblessness unexpectedly fell to 6.6 percent in January, nearing the central bank’s threshold for considering an increase in the benchmark interest rate. In her first public remarks as Fed Chairman, Yellen said the unemployment rate alone isn’t an adequate gauge of labor-market health. She also repeated the Fed’s statement that asset purchases aren’t on a “pre-set course.”

Yellen’s congressional testimony “was a key uncertainty coming into the week,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said in a telephone interview. “I think that could have kept some issuers on the sidelines.”

The extra yield investors demand to own corporate bonds rather than government debentures narrowed to 187 basis points yesterday from 192 basis points on Feb. 7, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index. Yields decreased to 3.85 percent from 3.87 percent, and compare with a record low 3.35 percent in May.

Capital One

Capital One sold $750 million of 1.2 percent, three-year notes to yield 58 basis points more than similar-maturity Treasuries and $1 billion of 2.25 percent, five-year bonds at a relative yield of 78 basis points, according to data compiled by Bloomberg. The McLean, Virginia-based company issued the debt through its Capital One Bank unit.

CIT, the junk-rated business lender run by John Thain, issued $1 billion of 3.875 percent debentures due in 2019, Bloomberg data show. The company captured its lowest coupon since emerging from bankruptcy in December 2009.

Sales of investment-grade debentures reached at least $15.4 billion, compared with $21.7 billion last week that matched the weekly average during the past year, Bloomberg data show. Offerings of speculative-grade bonds reached at least $4.7 billion, compared with $6.9 billion last week, which matched the average of the past 12 months.

Speculative-grade bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

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

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net

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