- Investors will buy deals at 'right price,' BlackRock says
- No junk-bond issuance since last week amid volatility
The U.S. corporate bond market is showing signs of life.
Rolls-Royce Holdings Plc sold dollar debt for the first time in 22 years on Tuesday as domestic borrowers stayed on the sidelines amid concerns that global growth is slowing.
While the engine maker issued $1.5 billion in notes at yields that were lower than originally marketed they are more than what investors demand to hold other corporate bonds with similar ratings and maturity, Bank of America Merrill Lynch indexes show.
“Investors are becoming more selective with what they feel comfortable buying," which could require some deals to come with bigger concessions, according to BlackRock Inc.’s Jeff Cucunato, who heads U.S. investment-grade credit in New York. "The right deal at the right price will still see plenty of demand.”
Russia’s biggest miner GMK Norilsk Nickel PJSC sold $1 billion in a debt offering Tuesday that also tightened throughout the day, selling to yield 6.625 percent, or 0.375 percentage point less than initial price talk, according to people with knowledge of the matter.
The deals come as investors have become more selective in their lending after disappointing U.S. payroll data on Friday added to angst that global turmoil is weighing on the outlook for the world’s largest economy. Investment-grade companies raised $3.1 billion of bonds this month through Monday, the slowest start for an October since 2008, while junk-rated borrowers haven’t tapped the market in more than a week as investors demand about the highest yields in three years, relative to government debt, Bank of America Merrill Lynch index data show.
Companies stood on the sidelines as bonds of Hewlett-Packard Co. tumbled the day after its $14.6 billion offering last week. The losses came even after the computer maker had offered hefty premiums to lure bond investors.
Enbridge Energy Partners LP was forced to sweeten yields last on its $1.6 billion bond sale to attract buyers as the transporter of crude oil and natural gas tapped a market wary of petroleum-related borrowers. On Monday, NN Inc. pulled a $300 million bond offering intended to finance the machine-parts maker’s takeover of a rival, according to three people with knowledge of the matter.
Given the uncertainty, investors are prepared for the prospect that issuance will remain at bay until later in the month even as companies including Halliburton Co. and Pfizer Inc. still need to raise debt to finance $458 billion of takeovers by year end.
“Supply oftentimes is a response to the robustness of demand,” said Ashish Shah, the global head of credit strategies at AllianceBernstein Holding LP. “Demand is weak given the volatility that we’ve seen.”