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Company Bond Sales Reach $41 Billion in U.S. as Fed Holds Course

Companies marketed at least $41 billion of bonds in the U.S. this week and relative yields widened as the Federal Reserve said it would continue its record stimulus measures.

H.J. Heinz Co., the ketchup maker being acquired by Warren Buffett’s Berkshire Hathaway Inc. and 3G Capital Inc., is preparing to sell $3.1 billion of debt following offerings this week from Bank of America Corp. and Comcast Corp. Offerings compare with $39.9 billion last week and a 2013 weekly average of $32.3 billion, according to data compiled by Bloomberg.

Federal Reserve Chairman Ben S. Bernanke said on March 20 that further gains in the U.S. labor market are needed for the central bank to consider reducing monetary easing, with joblessness falling to 7.7 percent last month, the least since 2008. The U.S. economy is expected to grow 1.9 percent this year and 2.7 percent in 2014, the most since 2006, according to the average estimate of economists surveyed by Bloomberg.

“Everyone is watching to see at what level does the Fed start cutting back on support,” Marc Gross, a money manager at RS Investments in New York who oversees $3.5 billion in fixed-income funds, said in a telephone interview. The economy “is almost at a sweet spot; it’s strong enough to keep companies from defaulting and keep them growing, and it’s not too strong where interest rates are going to rise by a huge amount.”

The extra yield investors demand to own corporate bonds rather than government debentures widened to 215 basis points as of yesterday from 212 basis points on March 15, according to Bank of America Merrill Lynch index data.

Bank of America

Yields decreased to 3.56 percent from 3.57 percent, and compare with a record low 3.52 percent on Jan. 23, index data show.

Bank of America sold $4 billion of debt in four parts including $1 billion of five-year notes that yield 107 basis points more than the three-month London interbank offered rate and $750 million of three-year debt at 82 basis points more than the floating benchmark, Bloomberg data show.

Sales of investment-grade debentures reached at least $23 billion, compared with $31.4 billion last week and a 2013 weekly average of $24.5 billion, Bloomberg data show.

Comcast’s NBCUniversal unit issued $4 billion of fixed- and floating-rate debt as a part of a $16.7 billion payment to General Electric Co., including $1.1 billion of 1.662 percent, five-year debt that yields 85 basis points more than similar-maturity Treasuries and a $1.5 billion portion of 1.974 percent bonds due 2019 that pay a spread of 120 basis points, Bloomberg data show.

Yields on investment-grade debt fell to 2.82 percent yesterday from 2.84 percent on March 15, according to the Bank of America Merrill Lynch U.S. Corporate index. Spreads widened 2 basis points to 147 basis points.

Asset Purchases

The Fed, seeking to boost the pace of growth and heal a job market still scarred by the deepest recession since the Great Depression, said it decided to leave the pace of asset purchases unchanged at $85 billion a month. It also said it will leave its key interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation is less than 2.5 percent.

Offerings of speculative-grade bonds reached at least $13.3 billion, compared with $8.4 billion last week and a 2013 weekly average of $7.8 billion, Bloomberg data show.

Yields on junk debt were unchanged from 6.4 percent on March 15, according to the Bank of America Merrill Lynch U.S. High Yield index. Spreads widened 4 basis points to 476 basis points.

High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

Issuers planning sales include Fidelity & Guaranty Life Holdings Inc., a unit of Philip Falcone’s Harbinger Group Inc., with a $300 million offering of eight-year notes and retailer American Apparel Inc. with a $200 million deal, Bloomberg data show.

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