Sept. 14 (Bloomberg) -- Corporate bond offerings in the U.S. soared this week to the busiest pace in six months as borrowing costs tumbled and the Federal Reserve unleashed its third round of quantitative easing to stimulate the economy.
Walgreen Co., the largest U.S. drugstore chain, and London-based AstraZeneca Plc led borrowers selling at least $43.2 billion in bonds, the most since $60 billion was issued in the week ended March 9, according to data compiled by Bloomberg. Yields on speculative-grade debt dropped to an unprecedented low, breaking the previous record set more than 15 months ago.
Issuers rushed to sell debt in anticipation that Fed Chairman Ben S. Bernanke would expand his supply of tools to attack unemployment stuck above 8 percent since February 2009. Issuance is on pace for a record September, ignited by the European Central Bank’s announcement Sept. 6 of a bond-buying program that eased concern of a contagion triggered by a collapse of the euro.
“It’s a central bank-fueled world right now,” Jon Duensing, the Boulder, Colorado-based head of corporate credit at money manager Smith Breeden Associates, said in a telephone interview.
The week started with $19.9 billion of sales on Sept. 10, eclipsing the $18.7 billion sold on Sept. 4 to become the busiest day in more than six months, Bloomberg data show.
“Usually in a busy day the market has difficulty digesting that amount of issuance,” David Brown, a portfolio manager who helps oversee $89 billion of fixed-income assets at Neuberger Berman in Chicago, said in a telephone interview. “These deals were so well absorbed by the market. Almost all of them tightened price talk from initial guidance either modestly or meaningfully.”
Sales this month total $83.8 billion, about twice the amount sold in the same period last year, Bloomberg data show.
“There’s huge, huge demand for corporate bonds,” Duensing said. “The primary market is the main place of liquidity for a lot of people.”
Walgreen, the largest U.S. drugstore chain, sold $4 billion of bonds in five parts to help repay debt linked to its $6.7 billion acquisition of a 45 percent interest in Alliance Boots Holdings Ltd., Bloomberg data show.
The drugstore operator issued $550 million of 18-month floating-rate notes to yield 50 basis points more than the three-month London interbank offered rate, $750 million of 1 percent, 2.5-year securities at 80 basis points more than benchmarks, $1 billion of 1.8 percent, five-year bonds at a spread of 120 basis points, $1.2 billion of 3.1 percent, 10-year debentures at 145 basis points and $500 million of 4.4 percent, 30-year debt at 165, Bloomberg data show.
Sales of investment-grade debt reached at least $34.9 billion, Bloomberg data show, an increase from $34.2 billion last week and compared with a 2012 weekly average of $20.4 billion. Issuance was the most since $51 billion in the five days ended March 9.
Yields on investment-grade bonds increased from a record-low 2.978 percent on Sept. 3 to 2.993 percent yesterday, Bank of America Merrill Lynch index data show. Spreads decreased 5 basis points this week to 176 basis points.
The Fed said yesterday it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing. It will also continue its program to swap $667 billion of short-term debt with longer-term securities as well as reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.
“The committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions,” the Federal Open Market Committee said in a statement at the end of a two-day meeting in Washington. It will probably hold the federal funds rate near zero “at least through mid-2015.”
AstraZeneca, the U.K.’s biggest drugmaker after GlaxoSmithKline Plc, raised $2 billion in its first dollar-denominated sale in five years, Bloomberg data show. The maker of Nexium issued $1 billion each of 1.95 percent, seven-year debt and 4 percent, 30-year bonds.
Sales of high-yield bonds reached at least $8.3 billion this week, the most since $11.4 billion in the week ended Aug. 17, Bloomberg data show. Sales increased from about $6.4 billion last week and compare with a 2012 weekly average of $5.8 billion.
Yields on the Bank of America Merrill Lynch U.S. High Yield Master II index dropped to an unprecedented 7.163 percent on Sept. 11, breaking the previous record of 7.187 percent set in May 2011, before falling further to 7.07 percent yesterday, Bloomberg data show.
“Everything is yielding at record lows or near record lows, particularly among the domestic markets,” Duensing said. “If you look at relative spread compensation, that’s still more than adequate given the default risk.”
Spreads on junk debt decreased 24 basis points this week to 550 basis points, above a low of 241 basis points in June 2007, index data show.
NRG Energy Inc., the largest power producer in Texas after Energy Future Holdings Corp., raised $990 million of 6.625 percent bonds maturing in March 2023, Bloomberg data show. The bonds are rated B1, the fourth-highest level of speculative-grade, by Moody’s Investors Service.
Companies planning sales include Mission Health System Inc., a North Carolina-based hospital operator, raising $250 million of 30-year debt and Munich-based carmaker Bayerische Motoren Werke AG with a $750 million issue, Bloomberg data show.
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