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BHP Billiton Leads U.S. Bond Sales in Biggest Month Since May

U.S. corporate bond sales rose above the 2011 average for the fourth consecutive week as retail sales improved and fewer Americans filed for unemployment, signaling the world’s biggest economy may be strengthening.

BHP Billiton Ltd., the world’s largest mining company, sold $3 billion of bonds in its first U.S. dollar-denominated offering in more than two years, and Mooresville, North Carolina-based Lowe’s Cos. issued $1 billion of debt as issuance reached $28.4 billion, according to data compiled by Bloomberg. That compares with the weekly average of $23.2 billion this year.

Company bond offerings in November have climbed to the highest in six months as investment-grade borrowing costs hold within 40 basis points of the record-low 3.45 percent reached in August. Issuers have been undeterred by Europe’s worsening sovereign debt crisis while reports show the U.S. economic recovery may be gaining traction and as investors seek the relative safety of U.S. assets, including Treasuries and corporate bonds.

“You’re seeing names that are more isolated from some of the sovereign risk,” said Rajeev Sharma, a money manager at First Investors Management Co. in New York, where he helps oversee $1.5 billion of investment-grade debt. “They may be impacted by a global slowdown but at the same time, they are not financial names you associate with exposure,” to Europe.

Of the $92 billion of bond offerings this month, banks have accounted for about 15 percent, or $13.45 billion, Bloomberg data show. That compares with October, when banks issued $20.3 billion of bonds, or 23 percent of sales.

Europe Impact

Overall offerings this month are at the highest since May, when sales reached $158.9 billion. Sales have fallen from $38.5 billion last week when Amgen Inc. and Peabody Energy Corp. led issuance.

Yields on investment-grade company bonds rose 5 basis points to 3.85 percent yesterday, according to Bank of America Merrill Lynch index data. Relative yields over Treasuries rose to 248 basis points. A basis point is 0.01 percentage point.

Investment-grade U.S. companies tracked by Bank of America Corp. get an estimated 11 percent of sales from Europe, compared with 16 percent for companies in the Standard & Poor’s 500 Index, Hans Mikkelsen and Yuriy Shchuchinov, New York-based credit strategists at the bank, said in a Nov. 16 report.

“Because most companies have relatively little credit risk, the impact of likely decreases in earnings from Europe mostly accrues to shareholders,” the strategists wrote.

Applications for jobless benefits decreased 5,000 in the week ended Nov. 12 to 388,000, the lowest level in seven months, while retail sales in October rose 0.5 percent, helped by the biggest jump in electronics purchases in two years. The median forecast of 81 economists surveyed by Bloomberg News was for a 0.3 percent rise in retail sales.

Dollar Assets Demand

Global demand for U.S. stocks, bonds and other financial assets rose the most in 10 months in September amid turmoil in Europe. Net buying of long-term equities, notes and bonds totaled $68.6 billion, the highest since November 2010, compared with net buying of $58 billion in August, the Treasury Department said in Washington on Nov. 16.

The U.S. economy may end 2011 growing at its fastest clip in 18 months as analysts increase their forecasts for the fourth quarter just a few months after a slowdown raised concern among investors.

Economists at JPMorgan Chase & Co. in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent. Macroeconomic Advisers in St. Louis increased its forecast to 3.2 percent from 2.9 percent at the start of November, while New York-based Morgan Stanley & Co. boosted its outlook to 3.5 percent from 3 percent.

Anticipating a Crisis

BHP Billiton’s sale on Nov. 16 included $1 billion of three-year, 1.125 percent notes that priced to yield 85 basis points more than similar-maturity Treasuries, $750 million of five-year, 1.875 percent debt at a spread of 110 basis points and $1.25 billion of 10-year, 3.25 percent debentures that pay 135 basis points more than the benchmark, Bloomberg data show. The Melbourne-based company increased the offering from $2 billion.

As Italy’s borrowing costs shatter euro-era records and Greek leaders race to secure financing designed to avert default, some companies are tapping the market in anticipation of a worsening crisis, according to Brian Cogliandro, head of syndicate at Mitsubishi UFJ Securities USA in New York.

Rush to Sell

“Europe has focused people to go sooner rather than later,” he said in a telephone interview. “Maybe now is the right time before something happens more strongly in Europe.”

The offering from Lowe’s, the second-largest U.S. home-improvement retailer after Home Depot Inc., was split evenly between 10-year, 3.8 percent notes and 30-year, 5.125 percent bonds, Bloomberg data show. Proceeds may be used for stock buybacks, capital expenditures, acquisitions or working capital, the company said in a Nov. 16 regulatory filing.

Kellogg Co., the maker of Froot Loops cereal, and Minneapolis-based General Mills Inc., the maker of Yoplait yogurt, also issued bonds this week, Bloomberg data show.

Hospital chain operator Community Health Systems Inc. issued $1 billion of speculative-grade debt on Nov. 14 as yields on junk bonds rose to 8.8 percent, Bank of America Merrill Lynch index data show. Spreads on the securities, rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, expanded to 762 basis points.

“It’s the middle of November and the year’s coming to a close, so a lot of issuers want to come to market and take advantage of rates,” Sharma of First Investors said.

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