July 27 (Bloomberg) -- Corporate bond sales fell in the U.S. this week as high-yield offerings tumbled 47 percent and relative yields climbed for the first time in almost two months with Europe’s sovereign-debt crisis roiling markets globally.
Offerings of at least $21 billion compare with $24.3 billion in the five days ended July 20 and a weekly 2012 average of $26.3 billion, according to data compiled by Bloomberg. International Business Machines Corp., the world’s largest computer-services provider, obtained a record-low coupon for 10-year dollar-denominated bonds. Bristol-Myers Squibb Co. got record-low interest rates on its five- and 30-year debt.
“There is a lot of pure money looking to be put to work in good high-quality names for buy-and-hold accounts,” Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, said in a telephone interview.
Yields fell on investment grade while rising on junk bonds as buyers sought safety. Federal Reserve Chairman Ben S. Bernanke warned that Europe’s financial woes are creating “spillover effects” in the rest of the world. As surging yields in Spain and Italy threatened the existence of the euro, European Central Bank President Mario Draghi pledged to do whatever it takes to preserve the 17-nation common currency.
The extra yield investors demand to own corporate bonds rather than government debt increased 2 basis points this week to 284 basis points, or 2.84 percentage points, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Master index. Spreads had tightened for seven straight weeks since expanding by 13 basis points in the five days ended June 1.
Yields on investment-grade bonds fell to a record low 3.049 percent on July 24, before climbing to 3.053 percent yesterday, according to the Bank of America Merrill Lynch U.S. Corporate Master index. Relative yields increased 1 basis point to 200 basis points.
“Overall, spreads have held in remarkably well and speaks to the desire for yield,” said Anthony Valeri, a market strategist in San Diego at LPL Financial. “It’s a reflection of the still strong credit quality metrics domestically. The market is not convinced that European troubles are going to have that big of an impact” on credit quality.
Europe’s financial markets and economy “remain under significant stress,” posing risks globally, Bernanke said July 17 in testimony to the Senate Banking Committee in Washington. “The possibility that the situation in Europe will worsen further remains a significant risk to the outlook.”
Spain’s two-, five-, 10- and 30-year yields all surged above 7 percent this week, the level that spurred Greece, Ireland and Portugal to seek bailouts. Italy’s 30-year bond rate climbed above 7 percent for the first time since January.
“To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate,” Draghi said in a speech at the Global Investment Conference in London yesterday. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he said, adding: “believe me, it will be enough.”
Treasuries fell to 1.39 percent on July 24 before reaching 1.44 percent yesterday, Bloomberg data show.
Investment-grade sales of $16.8 billion compared with $16.3 billion last week and a 2012 weekly average of $20.7 billion, Bloomberg data show.
Bristol-Myers sold debt for the first time in more than four years to help fund its acquisition of Amylin Pharmaceuticals Inc. The company sold $750 million of 0.875 percent, five-year debt and $500 million of 3.25 percent, 30-year bonds, obtaining the lowest coupons on record for dollar-denominated debentures with similar maturities, Bloomberg data show.
The offering from the New York-based maker of the blood thinner Plavix also included $750 million of 2 percent, 10-year securities.
IBM, based in Armonk, New York, sold $1 billion of bonds at 1.875 percent, beating a previous record of 2 percent held by 3M Co. for bonds sold on June 21, Bloomberg data show. The bonds priced to yield 2.05 percent, for a spread of 65 basis points more than similar-maturity Treasuries.
The company last sold 10-year bonds in October 2011, issuing $500 million of 2.9 percent debt to yield 62.5 basis points more than benchmarks, Bloomberg data show.
“We have record-low coupons and yields, which is still attracting a substantial amount of cash even with tight spreads and minimal new issue concessions,” Cox said.
Sales from high-yield borrowers fell to $4.3 billion compared with $8.1 billion in the period ended July 20 and a 2012 weekly average of $5.6 billion, Bloomberg data show.
The only offering to exceed $500 million came from Biomet Inc., the Warsaw, Indiana-based maker of medical devices, which sold $1 billion of 6.5 percent, eight-year bonds.
Biomet was taken private by Blackstone Group LP, Goldman Sachs Group Inc., KKR & Co. and TPG Capital in 2007, according to a news release at the time.
Yields on junk debt rose to 7.648 percent yesterday from 7.615 percent on July 20, according to the Bank of America Merrill Lynch U.S. High Yield Master II index. Spreads increased 7 basis points to 635 basis points.
Issuers planning to sell debt include Crescent Resources LLC with a $325 million offering, and FTS International Inc. with a $400 million transaction, Bloomberg data show.
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