US Corporate Bonds Pass $1.5 Trillion for Annual Record
Late in the year, US Corporate bond sales reached an annual record because of borrowers locking into low interest rates that pushed 2014 offers beyond $1.5 trillion.
The issuance by the heart rhythm device maker Metronic, Inc.’s (MDT) yesterday of $17 billion in bonds, which was the biggest dollar denominated offering more than a year, is what helped bolster numbers, as shown in data compiled by Bloomberg. In addition, Alibaba Group Holding Ltd. (BABA), an internet commerce company, last month sold $8 billion that in turn helped increase 2014’s volume beyond last year’s $1.494 trillion.
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As companies seized on record-low borrowing costs, issuance is thriving, something helped by the Federal Reserve staying true to its pledge of keeping benchmark interest rates close to zero for a decent amount of time. As indicated by the US Corporate and High Yield Index with Bank of America Merrill Lynch, after investors were provided a 0.34% gain last year, securities returns jumped to 6.9%.
Rob Lutts, chief investment officer of Cabot Money Management, Inc. said this is proving to be one of the best performing safe assets over the course of the last several years. The fact that money is coming in so quickly shows that investors believe this is the best place to be.
For 24 consecutive weeks money has poured from investors into corporate investment grade funds, which for the week-ending November 26, has inflows of $880 million, this according to Lipper. For five of the last six weeks, there have been deposits specific to high yield bond funds.
In 2014, $1.168 trillion of investment grate notes have been offered by borrowers along with junk bonds in the amount of $344 billion that together were pushed by multiple sales from General Electric Co. (GE), and Verizon Communications, Inc. (VZ). This is a significant change from last year of $1.146 trillion of high grade notes and $348 billion of junk notes.
Indicated to the Bank of America Merrill Lynch US Corporate and High Yield Index, yields on corporate US bonds declined in June to 3.57%.
Bonds sold by Medtronic were broken down into seven parts in order to fund the purchase of Covidien PLC, a surgical gear maker, opposed to using overseas kept money in line with US tax laws. This year, Verizon offered $14.8 billion of bonds while GE issued $13.2 billion, both driving investment grade sales to the highest level since 1999.
Boosted in April by a $10.675 billion offering from Altice SA (ATC) and Numericable Group SA (NUM) owned by billionaire Patrick Drahi were junk bond sales. Yesterday, yields on speculative grade debt climbed to 6.69%, which is up from June’s record low of 5.7%, also reported on the US High Yield Index associated with the Bank of America Merrill Lynch.