Sales of corporate bonds from the U.S. to Europe and Asia are accelerating, marking their busiest January ever following record issuance in 2012, as borrowers seek to lock in yields at about record lows.
Berkshire Hathaway Inc., the investment firm run by Warren Buffett, and Fairfield, Connecticut-based General Electric Co. led issuers selling $412.3 billion of bonds this month, up from $226 billion in December and surpassing the $407.2 billion sold in January 2009, according to data compiled by Bloomberg. Sales last year soared 20.5 percent to $3.96 trillion.
Treasurers are tapping the company bond market as Bank of America Corp. says a “disorderly rotation” from debt into equities may cause borrowing costs to rise. Yields for the most creditworthy to the riskiest borrowers are climbing this month for the first time since May.
“The market has been obviously red hot, so that brings every issuer out of the woodwork,” Marc Gross, a money manager at RS Investments in New York who oversees $3 billion in fixed-income funds, said in a telephone interview. “The market is receptive to issuers so they’ll keep coming until the market gets fatigued.”
Sales climbed even as corporate bonds are poised for their first loss in 14 months. Global debt has lost 0.4 percent through Jan. 30, its first decline since a 1.98 percent loss in November 2011, according to the Bank of America Merrill Lynch Global Corporate & High Yield index.
Yields rose to 3.36 percent yesterday from 3.28 percent on Dec. 31, the first monthly increase since a 9 basis-point advance to 4.23 percent in May, according to the Bank of America Merrill Lynch Global Corporate & High Yield index. The extra yield investors demand to own company debentures rather than government debt has fallen to 209 basis points, or 2.09 percentage points, from 221 at year-end.
Global sales slowed in the first week of the year to about one-third of 2011’s pace, with issuers sidelined by legislative wrangling in Washington, before soaring to $130.5 billion in the five days ended Jan. 11, the busiest week ever, Bloomberg data show.
In the U.S., companies sold at least $166.2 billion of debt this month, the most ever for January, with investment-grade companies issuing $126.4 billion and junk-rated borrowers raising $39.8 billion, Bloomberg data show.
“I don’t foresee an end to the voracious appetite for yield; there’s a lot of money to be put to work,” said Ronald Quigley, head of fixed-income syndicate and primary sales at Mischler Financial Group, adding that he expects robust issuance to continue into next month.
Berkshire, which its 82-year-old chairman built into a $241 billion company in market value with takeovers and stock picks, raised $2.6 billion in a four-part offering, Bloomberg data show. The sale from the Omaha, Nebraska-based company included $1 billion of 4.5 percent, 30-year debt that yields 140 basis points more than similar-maturity Treasuries.
GE, the largest maker of engines for jet planes, raised $4 billion in a three-part sale, Bloomberg data show. The offering included $2 billion of 3.1 percent, 10-year notes at a spread of 122 basis points. Those bonds have fallen 1 cent from the issue price on Jan. 3 to 98.8 cents on the dollar to yield 3.24 percent as of 3:05 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The economy in the U.S. unexpectedly came to a standstill in the fourth quarter, as gross domestic product dropped at a 0.1 percent annual rate, as the biggest plunge in defense spending in 40 years swamped gains for consumers and businesses. The results were the worst performance since the second quarter of 2009, when the world’s largest economy was still in the recession, Commerce Department figures showed yesterday in Washington.
Federal Reserve policy makers said on Jan 3 they will probably end their $85 billion monthly bond purchases sometime in 2013, with members divided between a mid- or end-of-year finish. The agency has used bond-buying alongside other measures, including holding its benchmark interest rate at zero to 0.25 percent since December 2008, in an effort to boost economic growth and cut the jobless rate, now at 7.8 percent.
Investment-grade bondholders may see “massive outflows” this year as investors shift their allocations toward stocks as the risk of higher interest rates rises, analysts led by Hans Mikkelsen wrote in a Jan. 28 report.
The potential rotation is “the biggest risk to investment grade this year and the one we are getting increasingly concerned about,” they wrote.