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September 11, 2012 12:27 am
A deluge of global companies rushed to sell bonds in the US in the best session for investment-grade debt issuance in more than three years, as borrowers sought to lock in low rates ahead of a key Federal Reserve meeting.
Transocean, the world’s largest offshore oil driller, Walgreens, the largest US drugstore chain and pharmaceutical company Merck were some of the companies that returned to markets with blockbuster sales, issuing a combined total of more than $21bn worth of investment-grade bonds on Monday.
The amount was the largest sold by high-grade borrowers in a single session since February 18 2009 when $25.5bn in new debt was offered, according to Dealogic.
Borrowers sold the bonds amid investor optimism that sent equity markets to their best close since 2008 last week and after disappointing job figures boosted the view the US central bank may announce measures to stimulate growth at the conclusion of a two-day meeting on Thursday.
Analysts said the Fed’s expected move to ease monetary policy had already been priced in to the market, prompting borrowers to move now rather than risk volatility if the central bank announcement disappoints.
Sales also jumped in Europe, where companies issued about €7.8bn worth of debt in the best day for non-financial European issuance this year. There are also potentially market-moving events in Europe this week which could disrupt debt issuers’ plans, including Dutch elections and a German constitutional court ruling on the legality of the eurozone’s rescue vehicle.
“The ECB delivered and then the US unemployment number was so bad that we are near sure [that] it will jump start the Fed into a QE programme, including asset purchases,” said Adrian Miller, global markets strategist at GMP Securities.
In the US, the biggest sale came from Walgreens, which sold $4bn of debt in five parts, followed by a $3.25bn issued by the Commonwealth Bank of Australia and Merck’s $2.5bn deal.
Monday’s sales have pushed the total for US investment-grade issuance to nearly $50bn so far this month, the best start to a month since March, and comes after the busiest August on record for global debt sales. More than $130bn of corporate bonds were sold last month, according to Dealogic – the best August figure since its records began in 1995.
The sales were met with strong demand as returns on corporate bonds have far outpaced government securities this year. On average, US investment-grade debt has returned 7.9 per cent, compared with 2.4 per cent for US Treasuries, according to Barclays indices.
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