General Motors Co.’s finance unit and billionaire Warren Buffett’s Berkshire Hathaway Inc. led dollar-denominated sales of at least $42.1 billion this week as relative yields narrowed.
General Motors Financial Co. sold $2.5 billion in its first issue in almost nine months while Berkshire Hathaway Finance Corp. raised $1 billion in its second sale this year, according to data compiled by Bloomberg. Sales slowed from $46.4 billion in the previous period, the busiest in six weeks with Apple Inc.’s record $17 billion issue.
Berkshire found demand for its two-part offering even after Chief Executive Officer Buffett said four days earlier that with yields at record lows, the parent of insurers Geico and General Re isn’t buying corporate bonds. Investors are seeking higher returns with company debentures as the Federal Reserve holds interest rates at almost zero for a fifth year and undertakes $85 billion in monthly bond purchases to stimulate the economy.
“There are still opportunities out there, but we’re having to work a little harder,” John Lekas, chief executive officer at Portland, Oregon-based Leader Capital Corp., said in a telephone interview. Lekas’s Leader Total Return Fund has beaten 94 percent of its peers this year. “Issuance has trimmed down a little bit for the week, but it seems like it’s right on track.”
Yields on U.S. corporate debt declined to 3.385 percent yesterday from 3.395 percent on May 3, Bank of America Merrill Lynch index data show. The extra yield investors demand to own corporate bonds rather than government debentures narrowed 3 basis points to 201 basis points yesterday, the data show. A basis point is 0.01 percentage point.
GM Financial issued $1 billion of 2.75 percent, three-year notes yielding 241 basis points more than similar-maturity Treasuries and $750 million each of 3.25 percent, five-year securities with a relative yield of 250 basis points and 4.25 percent 10-year bonds at a 247 basis-point spread, according to Bloomberg data.
Sales of investment-grade debentures reached at least $30.9 billion, compared with $39.8 billion last week and a 2013 weekly average of $24.4 billion, Bloomberg data show.
Yields on investment-grade bonds were little changed at 2.71 percent for the week through yesterday, according to the Bank of America Merrill Lynch U.S. Corporate index. Spreads tightened 2 basis points to 143 basis points.
Berkshire, whose cash hoard reached a record $49.1 billion in its first quarter, sold $500 million of 1.3 percent, five-year debt with a 57 basis-point spread and an equal portion of 4.3 percent, 30-year bonds with a relative yield of 135 basis points, Bloomberg data show. The issuance secured the Omaha, Nebraska-based company’s lowest coupons for those maturities ever.
Offerings of speculative-grade bonds reached at least $11.2 billion, compared with $6.6 billion last week and a 2013 weekly average of $8.2 billion, Bloomberg data show.
Yields on junk debt declined to a record low of 5.984 percent yesterday from 6.048 percent on May 3, according to the Bank of America Merrill Lynch U.S. High Yield index. Spreads tightened 10 basis points to 423 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 emerging markets mobile-phone operator Millicom International Cellular SA and Eskom Holdings SOC Ltd., the South African power utility that’s building the world’s third- and fourth-biggest coal-fired plants. Eskom will sell more than $1 billion of bonds this year, its Chief Executive Officer Brian Dames said in an interview at the World Economic Forum for Africa in Cape Town.