Sales of corporate bonds in the U.S. are capping the busiest week this month as companies seized on borrowing costs that dropped to the lowest in a year.
Pfizer Inc., the biggest U.S. drugmaker, issued $4.5 billion and Wolfsburg, Germany-based Volkswagen AG raised $3.5 billion, according to data compiled by Bloomberg. Offerings of about $41 billion were the most since $47.3 billion in the five days ended April 25 and compare with a weekly average of $29.1 billion over the past 12 months.
Issuance rose as yields decreased amid signs U.S. economic growth is faltering. Industrial production unexpectedly declined in April and consumer confidence fell in May from a nine-month high. David Tepper, founder of $20 billion hedge-fund firm Appaloosa Management LP, said he’s nervous about markets as the economy isn’t growing fast enough.
“The rates environment has changed a bit from where it was a couple weeks ago, and that has provided a lot of companies the opportunity to come to market,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “It has let them access the debt market more attractively.”
The extra yield investors demand to own corporate bonds rather than government debentures widened by 1 basis point this week to 170 basis points yesterday, up from an almost seven-year low of 167 basis points on April 22, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index. Yields fell to 3.62 percent, the least since May 2013 and down from 3.7 percent on May 9.
Pfizer’s sale included $1.5 billion of 2.1 percent, five-year notes that yielded 48 basis points more than similar-maturity Treasuries, Bloomberg data show. Proceeds from the deal, its first since last May, will be used by the New York-based company to repay debt.
Volkswagen, Europe’s largest automaker, issued debt in five parts including $1.45 billion of 1.25 percent, three-year notes with a relative yield of 47 basis points, Bloomberg data show. The sale was its biggest dollar-denominated offering ever, the data show.
Sales of investment-grade debentures rose to $32.2 billion from $21.7 billion last week and compared with a weekly average of $22.2 billion over the past 12 months, Bloomberg data show. Offerings of speculative-grade bonds fell to $9 billion, from $10.9 billion last week and compared with a weekly average of $6.8 billion over the past year.
High-risk, high-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.