Verizon has just priced the largest bond deal ever, and investors ate it up. Underwriters created eight tranches, the largest of which was priced to yield 6.55 percent with a 30-year maturity. If the yield sounds high, it was. So many investors have plowed in, they've driven yield to 6.02 percent in less than 24 hours.
The $47 billion offering exceeds the previous record by a factor of three, and compares to the GDP of nations like Guatemala, Tunisia and Uruguay. Nearly every strategist on the street has weighed in... whales don't wash ashore often.
Here's a sampling:
As always, Mr. Kalish combines clear language and thorough research. Blog readers will appreciate his call on the broader bond market: the recent run up in rates has overshot by 50 bps. His model incorporates core PCE inflation and GDP growth, then compares rates here to German bunds and forward Euro Dollars.
Connecting the dots leads us to a straightforward conclusion: An oversold near-term bond market and aggressive pricing created exceptional demand for this mother of all offerings.
If you missed it, fear not... you can still buy in (though today's 6.02 percent isn't quite as enticing as yesterday's 6.55 percent fire sale).
If you'd rather shop for yield more broadly, we present two choices: The corporate bond ETF LQD and its high yield cousin HYG. Each pays a monthly dividend. LQD yields 3.93 percent and HYG yields 6.3 percent. Verizon is rated BBB+, barely above the threshold separating investment grade and high yield. With defaults running a record low 2.9 percent, we think HYG represents a decent comp to the Verizon 30-yr tranche, and longer term it's more liquid. We also note its price is still below the 2007 glory days, suggesting upside.