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U.S. Company Bond Sales of $1.48 Trillion Set Annual Record

Forest Laboratories Inc. Headquarters
909 Third Avenue, home to the headquarters of Forest Laboratories Inc., stands in New York. Forest Laboratories Inc.’s $1.2 billion offering yesterday of 5 percent notes brought issuance of bonds from the riskiest to the most creditworthy companies to $1.481 trillion, eclipsing last year’s unprecedented $1.479 trillion, according to data compiled by Bloomberg. Photographer: Daniel Acker/Bloomberg

Dec. 6 (Bloomberg) -- Sales of dollar-denominated corporate bonds soared to a record for the second straight year, led by speculative-grade borrowers that rushed to offer debt before the Federal Reserve cuts its unprecedented stimulus.

Forest Laboratories Inc.’s $1.2 billion offering yesterday of 5 percent notes brought issuance of bonds from the riskiest to the most creditworthy companies to $1.482 trillion, eclipsing last year’s unprecedented $1.479 trillion, according to data compiled by Bloomberg. High-yield sales of $361 billion surpassed the record $356.9 billion from 2012.

Bond buyers have been scooping up corporate debt as the central bank has held benchmark interest rates between zero and 0.25 percent for five years to revive the economy following the worst financial crisis since the Great Depression. Issuers have taken advantage of borrowing costs at all-time lows to offer deals of unprecedented size.

“When you look back at it, it won’t get much better than this year,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said in a telephone interview. “There was still a very persistent desire to lock in rates.”

Corporate bonds have lost 0.1 percent this year on the Bank of America Merrill Lynch U.S. Corporate & High Yield Index as speculation mounts that the central bank will begin to trim its monthly purchases of $85 billion of mortgage bonds and Treasuries.

March Taper

Fed Chairman Ben S. Bernanke rattled fixed-income markets on May 22 by telling Congress that the tapering may begin once the economy shows sustained signs of improvement. He surprised investors in September by not announcing a reduction in the purchases.

Economists predict Fed policy makers will pare the monthly rate of bond buying to $70 billion at their March 18-19 meeting, according to the median of 32 estimates in a Bloomberg News survey on Nov. 8.

“You’ve seen a pretty dramatic change in the outlook” for interest rates, Simon Mayes, head of the financial institutions group syndicate at BNP Paribas SA in New York, said in a telephone interview. “It incentivized a lot of issuers to take advantage of the markets this year ahead of potential tapering in 2014. We saw enough of a move of rates since the summer to create concern that we could move higher next year.”

Spreads Tighten

The extra yield investors demand to hold U.S. corporate bonds rather than government debt fell yesterday to 200 basis points, or 2 percentage points, the least since October 2007, Bank of America Merrill Lynch index data show. Yields reached a record low 3.35 percent on May 2, before climbing to 4.01 percent.

“The market remains concerned and very focused on how rates are going to move in the coming few months,” Dorian Garay, a New York-based money manager for an investment-grade debt fund at ING Investment Management, said in a telephone interview.

Wall Street is diverging on how much life is left for the high-yield rally, with JPMorgan Chase & Co., the largest underwriter of the securities this year, predicting a 5 percent return next year and Morgan Stanley seeing a gain of 2.8 percent.

While corporate treasurers will find a “robust” market for new high-yield issuance in 2014, sales are expected to slow to about $300 billion next year from an estimated $371 billion in 2013, JPMorgan analysts led by Peter Acciavatti in New York wrote in a report dated Nov. 27.

Sales Doubled

Borrowing costs at close to record lows have sent the default rate for U.S. speculative-grade debt to 2.5 percent in October from 3.6 percent a year earlier, Moody’s Investors Service said Nov. 11.

Sales of high-yield, high-risk debt, rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s, have more than doubled from $147.3 billion in 2007, Bloomberg data show. A 6.8 percent gain this year on the Bank of America Merrill Lynch U.S. High Yield Index follows average annual returns of 21.6 percent from the end of 2008 through last December.

“The numbers are stupendous and I’m not surprised we’ve had another record year,” Margie Patel, a money manager at Wells Fargo & Co. in Boston, said in a telephone interview. “Money is still so available in the high yield market and it’s a great time to borrow at these near all-time low rates.”

Investment-grade sales in the U.S. are also poised for back-to-back records, with 2013 issuance $1.3 billion shy of the $1.122 trillion in 2012, Bloomberg data show.

Verizon, Apple

An eight-part $49 billion bond sale from Verizon Communications Inc. in September and Apple Inc.’s $17 billion issue in April were the two largest offerings on record, Bloomberg data show.

New York-based Forest Laboratories’ eight-year notes, rated Ba1 by Moody’s and an equivalent BB+ at S&P, the highest levels of speculative grade, priced to yield 225 basis points more than similar-maturity Treasuries, Bloomberg data show.

Even as dollar-denominated bonds reach a sales record, issuance worldwide of $3.68 trillion lags behind the $3.85 trillion in the corresponding period of 2012, Bloomberg data show. An unprecedented $4 trillion of the debt was issued last year.

JPMorgan is the largest underwriter of U.S. company bonds for the fourth straight year, with an 11.8 percent market share, according to Bloomberg data that excludes self-led deals. The biggest U.S. bank by assets was followed by Bank of America Corp., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc. The rankings are unchanged from 2012.

To contact the reporter on this story: Sarika Gangar in New York at

To contact the editor responsible for this story: Alan Goldstein at

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