Google Inc., the world's largest Internet-search company, and AAA-rated Johnson & Johnson sold corporate bonds as issuance soared to $49.9 billion in the second-busiest week on record.
Google issued $3 billion of debt in a three-part offering, its first ever, according to data compiled by Bloomberg. J&J's $3.75 billion offering included two-year notes paying the lowest interest rate for bonds of that maturity in records extending to 1999, Bloomberg data show. Sales accelerated 35.2 percent from a week earlier, when $36.9 billion was issued.
Companies from BlackRock Inc. to Texas Instruments Inc. also issued bonds as yields on the debt plunged to the lowest in more than six months. Mountain View, California-based Google borrowed at interest rates comparable to J&J and Microsoft Corp., two of the four U.S. nonfinancial companies with the top debt ratings, as investors embraced bonds from the most creditworthy issuers amid signs the economy is slowing.
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"It's a seller's market," said Mark Bamford, head of global fixed-income syndicate at Barclays Capital, the investment banking unit of Barclays Plc, in an interview with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." "Issuers like Google, who can get 1 percent, 2 percent and 3 percent coupons, they can really dictate terms to the marketplace."
Google sold $1 billion each of 1.25 percent three-year notes, 2.125 percent five-year notes and 3.625 percent, 10-year debt on May 16, Bloomberg data show. That compares with New Brunswick, New Jersey-based J&J's $900 million of 2.15 percent debt due May 2016 issued this week and Microsoft's $750 million of 2.5 percent, five-year notes sold on Feb. 3.
Yields Decline
Absolute yields on investment-grade corporate bonds declined this week to as low as 3.75 percent on May 17, the least since Nov. 11, Bank of America Merrill Lynch index data show. Junk bond yields touched 7.2 percent yesterday, matching the record low, the index data show.
Sales this week climbed to the most since companies issued a record $52.5 billion during the period ended March 25, Bloomberg data show. The average this year is $29 billion.
"This is a great time to be a corporate debt issuer, when everyone wants to be your lender and you don't have a pressing need to borrow," wrote Bank of America Corp. credit strategists led by Oleg Melentyev in a May 18 note to clients.
Economic Data
Output at U.S. factories, mines and utilities was unchanged last month after a 0.7 percent gain in March, figures from the Federal Reserve showed May 17. Work began on 523,000 new houses at an annual pace, down 10.6 percent, as tornadoes and floods in the South shut down construction sites.
The Fed is falling short of its goals as a "moderate" economic recovery leave the central bank with a "considerable way to go" to meet its mandate of full employment and price stability, said New York Fed President William Dudley said yesterday in a speech in New Paltz, New York.
J&J sold $3.75 billion of bonds in a six-part offering on May 17 that included its first notes with a maturity of less than five years in a decade, Bloomberg data show. It later added $150 million to a $600 million portion of three-year floating- rate securities and issued the two-year notes with a record-low 0.7 percent coupon, the data show.
Automatic Data Processing Inc., ExxonMobil Corp., J&J and Microsoft are the four U.S. nonfinancial companies with the same debt grades as the U.S. government from Moody's and S&P.
BlackRock, Texas Instruments
BlackRock sold $1.5 billion of notes in its first offering in more than 17 months, while Texas Instruments issued $3.5 billion of debt to help pay for its acquisition of National Semiconductor Corp.
Chrysler Group LLC sold $3.2 billion of eight- and 10-year notes and EchoStar Corp. issued $2 billion of debt as junk-rated offerings climbed to $12.2 billion, the most since the period ended March 4, when companies raised $12.7 billion, Bloomberg data show.
The extra yield investors demand to own high-yield bonds instead of Treasuries was little changed at 480 basis points this week, according to Bank of America Merrill Lynch index data. Spreads on investment-grade debt climbed 1 basis point to 150 basis points, the data show.
High-yield, high-risk, or junk, bonds are ranked below Baa3 by Moody's Investors Service and less than BBB- by Standard & Poor's. A basis point is 0.01 percentage point.
Investors favoring new issues over existing bonds are helping to keep junk-bond spreads from contracting, said Martin Fridson, global credit strategist at BNP Paribas Investment Partners. They're also concerned that is economic growth may be slumping, he said in a telephone interview.
"It's been a comparatively lackluster rebound from the recession," Fridson said. "Spreads are in line with the economic statistics, but those statistics aren't as robust as you might expect at this point in the expansion."
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