AT&T Inc. and Mylan Inc. led bond sales of $38.1 billion in the U.S. this week, 27 percent above average, as issuers lock in borrowing costs at about record lows, speculating that the Federal Reserve may start to curtail stimulus early next year.
AT&T, the largest U.S. phone company, and Canonsburg, Pennsylvania-based Mylan each raised $2 billion as offerings topped 2013’s weekly average of $30.1 billion, according to data compiled by Bloomberg. Issuance rose from $26.3 billion sold last week, the most since $41 billion in the five days ended Nov. 8.
As the year draws to a close, sales of $1.43 trillion are poised to surpass the unprecedented $1.48 trillion issued in all of 2012 as borrowers act ahead of a reduction of the Fed’s $85 billion in monthly bond purchases that could occur “in coming months,” central bank officials said this week. The comments increased the possibility that the Fed will act in December, though a March tapering remains the most likely outcome, according to Edward Marrinan at RBS Securities.
“There is limited time left in the pre-taper days,” Marrinan, a Stamford, Connecticut-based macro credit strategist, said in a telephone interview. “It’s having a big pull-forward effect on issuers. The taper decision has escalated the stakes.”
The extra yield investors demand to own corporate bonds rather than government debentures narrowed to 206 basis points yesterday from 208 basis points on Nov. 15, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield index. Yields increased to 3.96 percent from 3.95 percent, and compare with a record low 3.35 percent on May 2.
AT&T on Nov. 20 issued $1.6 billion in 2.375 percent, five-year bonds with a relative yield of 100 basis points and $400 million of floating-rate debentures paying 91 basis points more than the three-month London interbank offered rate, Bloomberg data show.
Mylan, the pharmaceutical company acquiring the injectable medicine unit of India’s Strides Arcolab Ltd., sold four $500 million portions of debt to help fund the purchase, Bloomberg data show. The maturities ranged from three-year notes, with a 1.35 percent coupon and an 80 basis-points spread, to 30-year debt, paying 5.4 percent or a relative yield of 165 basis points.
Four of five investors expect the Fed to delay a decision to begin reducing its bond buying until March 2014 or later, with just 5 percent looking for a move next month, according to a Bloomberg Global Poll based on interviews Nov. 19.
Janet Yellen, who has been nominated to replace current Fed Chairman Ben. S. Bernanke after his term ends Jan. 31, told the Senate Banking Committee on Nov. 14 that the benefits of the bond-buying program still outweigh the costs.
Sales of investment-grade debentures reached at least $31.4 billion, compared with $17.3 billion last week and a 2013 weekly average of $22.8 billion, Bloomberg data show. Offerings of speculative-grade bonds reached at least $6.7 billion, compared with $9 billion last week and this year’s weekly average of $7.3 billion.
High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.