China Concern Slows U.S. Corporate Bond Sales From Near Record

Sales of corporate bonds in the U.S. cooled from last week’s almost-record pace, dropping 38 percent, and relative yields widened as markets weakened on concern that China’s economic growth is moderating.

Petroleo Brasileiro SA raised $8.5 billion in the biggest dollar-denominated bond sale in six months and New York-based Verizon Communications Inc. issued $4.5 billion to help fund a tender as they led offerings of at least $39.9 billion, according to data compiled by Bloomberg. Sales fell from $64.4 billion last week, the second-busiest period ever, and were above the $29.2 billion weekly average over the past 12 months.

Issuance declined after last week’s rush by borrowers to lock in the narrowest relative yields since 2007 and avoid a potential rise in borrowing costs following the release of employment figures on March 7, according to Jody Lurie at Janney Montgomery Scott LLC. Spreads widened this week as an unexpected drop in Chinese exports fueled concern that the world’s second-largest economy is slowing.

“There’s been a somewhat weaker equity market that led to spread widening, and there’s been a smattering of international headline risk,” Lurie, a Philadelphia-based corporate credit analyst, said in a telephone interview.

Chinese stocks fell, sending the Hang Seng China Enterprises Index to its biggest weekly drop since October, amid deepening concern that weaker economic growth will curb earnings and spur corporate defaults.

The extra yield investors demand to own corporate bonds rather than government debentures increased to 182 basis points yesterday from 178 basis points on March 7, about the lowest since July 2007, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index. Yields decreased to 3.8 percent from 3.86 percent.

Verizon Tender

Verizon, the second-largest U.S. phone company, issued bonds in five parts to help fund a tender offer for as much as $8.2 billion of securities, the company said in a March 10 statement. The offering, which came six months after Verizon issued a record $49 billion, included $1.25 billion of 4.15 percent, 10-year notes that yielded 140 basis points more than similar-maturity Treasuries, Bloomberg data show.

Petrobras, as Brazil’s state-run oil company is known, issued debt in six parts that topped Cisco’s $8 billion deal on Feb. 24, making it the largest U.S. offering since Verizon’s unprecedented sale on Sept. 11. The Rio de Janeiro-based company’s offering included $2.5 billion of 6.25 percent, 10-year bonds at a relative yield of 350 basis points and $1 billion of 7.25 percent, 30-year debt at 360.

Sales of investment-grade debentures reached at least $34.3 billion, compared with $52.6 billion last week and a weekly average of $22.4 billion over the past 12 months, Bloomberg data show. Offerings of speculative-grade bonds reached $5.6 billion, compared with $11.8 billion last week and an average of $6.7 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.

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