Bond Sales Revisit ’09 Highs as Plunging Yields Entice Borrowers

European companies sold 11.5 billion euros ($15 billion) of bonds in the busiest week of issuance in 2 1/2 years as borrowers took advantage of record-low yields and pent-up investor demand for the debt.

Fiat SpA, Italy’s biggest manufacturer, steel producer ArcelorMittal and Jaguar Land Rover Plc sold bonds as non-financial corporate sales reached the highest since September 2009, according to data compiled by Bloomberg. Issuance this year now stands at 77 billion euros, the most in a quarter since March to June 2009 when companies raised 95.7 billion euros.

The European Central Bank’s injection of more than $1 trillion into the financial system eased concern that the region’s sovereign debt strains will trigger defaults. Corporate bond yields plunged 60 basis points this year to 2.7 percent, close to last week’s record 2.6 percent, Bank of America Merrill Lynch’s European Corporates Non-Financial Index shows.

“A lot of issuers have taken the opportunity to issue at record-low yields,” said Orjan Pettersson, a fund manager at SEB Asset Management in Stockholm, which oversees 5 billion euros of assets. “We also see a lot of inflows into our corporate bond funds so there is very strong underlying demand as well. The LTRO was a trigger for a radical sentiment shift.”

Moody’s Investors Service cut its 2012 global default rate forecast to 2.6 percent on March 8, from 2.8 percent the previous month. The New York-based ratings firm said it expects “historically low” default-rate levels to “continue over the near term while recognizing that significant risks remain.”

Sales ‘Burst’

The extra yield investors demand to buy company bonds instead of benchmark German government debt narrowed 61 basis points since December to 140, or 1.4 percentage points, Bank of America Merrill Lynch data show. The spread narrowed to 139 basis points March 16, the smallest gap since August.

“We’ve clearly had a burst, but we need to see how the lingering sovereign situation continues to pan out when considering whether it can continue,” said Harpreet Parhar, a credit strategist at Credit Agricole SA in London.

Investment-grade corporate bond funds in Europe are attracting the most money in almost three years. Investors funneled 2 billion euros into high-grade funds in January, the biggest inflow since July 2009, according to Chicago-based Morningstar Inc.

Fiat, which had its credit rating put on negative watch by Standard & Poor’s last month, sold 850 million euros of five-year securities, in its first bond sale since July 5, data compiled by Bloomberg show. The securities were priced to yield 594 basis points more than German government debt.

The Turin-based company is rated Ba2 by Moody’s, two levels below investment grade, and BB by S&P, which said last month it may lower the rating one more level by May.

Jaguar, ArcelorMittal

Jaguar Land Rover, the luxury vehicle unit of India’s Tata Motors Ltd., sold 500 million pounds ($795 million) of six-year notes in its first issue since May 2011. The Gaydon, England-based company’s securities were priced at a spread of 647 basis points more than U.K. government bonds. Jaguar Land Rover is rated B+ by S&P and B1 by Moody’s.

ArcelorMittal, the world’s largest steelmaker, sold 500 million euros of six-year bonds that were priced to yield 343 basis points more than government debt. The Luxembourg-based company is rated BBB- by S&P, the lowest investment grade level, and Baa3 by Moody’s.

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