Diageo Plc, the world's biggest distiller, and computer-services provider International Business Machines Corp. led $27.6 billion of corporate bond sales in the U.S. this week as relative yields on investment-grade debt rose.
Diageo, the seller of Johnnie Walker Scotch whisky and Guinness beer, raised $2.5 billion in a three-part offering and Armonk, New York-based IBM sold $1.5 billion of debt, including seven-year notes at a record-low coupon, according to data compiled by Bloomberg. Sales for the week compare with $32.6 billion in the period ended May 4 and a weekly 2012 average of $30.1 billion.
IBM and Diageo were joined by Berkshire Hathaway Inc. in tapping the bond market, showing investor appetite for the most creditworthy corporate borrowers even as political turmoil in Europe threatened to unravel the region's common currency and disrupt the financial system. Yields on investment-grade debt in the U.S. touched an all-time low this week.
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"In a world of dwindling quality debt instruments, there's going to be demand for the IBMs and the Berkshires of the world, and for other high-quality issuers," Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees about $330 billion, said in a telephone interview.
The extra yield investors demand to hold investment-grade corporate bonds rather than government debentures increased as spreads rose 3 basis points to 203 basis points, or 2.03 percentage points, according to Bank of America Merrill Lynch's U.S. Corporate Master index. Yields fell as low as 3.33 percent on May 8 before rising to 3.35 percent yesterday.
Sales of investment-grade bonds fell to $22.3 billion this week from $26.8 billion in the period ended May 4, the most in seven weeks, Bloomberg data show. Sales compare with a weekly average this year of $23.2 billion.
Investor concern is mounting that European policymakers will fail to stem the region's debt crisis after France elected socialist leader Francois Hollande and Greece's elections ended with inconclusive results on May 6. Speculation has since risen over whether Greece will exit the euro zone.
In the U.S., consumer borrowing surged in March by $21.4 billion, the biggest gain since November 2001, to $2.54 trillion, Federal Reserve figures showed May 7 in Washington. The advance was paced by a $16.2 billion jump in non-revolving debt, including student and car loans.
Diageo, IBM
Diageo sold $1 billion each of five-and 10-year notes and $500 million of 30-year bonds, Bloomberg data show. The 4.25 percent debt due in May 2042 yielded 125 basis points more than similar-maturity Treasuries, Bloomberg data show.
Diageo spokeswoman Kirsty King declined to comment.
IBM sold $900 million of 0.75 percent, three-year notes at a relative yield of 45 basis points, and $600 million of seven-year bonds at a record low 1.875 percent and a 65 basis-point spread, Bloomberg data show.
Proceeds from the issue "will be used for general corporate purposes, which could include refinancing long-term maturities and commercial paper, or funding acquisitions," said Doug Shelton, a spokesman for IBM.
Berkshire, run by 81-year-old billionaire Warren Buffett, issued $1.6 billion of bonds and China Petrochemical Corp., known as Sinopec, sold $3 billion in its first dollar-denominated issue since 1996, Bloomberg data show.
Berkshire didn't immediately respond to a request for comment, sent to Buffett's assistant Carrie Kizer.
Ford Motor Co. sold $1.25 billion of bonds two weeks after Fitch Ratings raised the automaker's credit ranking to investment grade. Moody's Investors Service and Standard & Poor's still rate the Dearborn, Michigan-based carmaker as junk.
Margaret Mellott, a spokeswoman for Ford, didn't immediately return a phone call or e-mail.
Sales of speculative-grade or high-yield bonds, graded below Baa3 by Moody's and lower than BBB- at S&P, fell to $5.3 billion from $5.7 billion last week, Bloomberg data show. Speculative-grade relative yields versus Treasuries widened to 600 basis points yesterday from 594 basis points on May 4.
Dish Network Corp., the second-largest U.S. satellite-television provider to DirecTV, issued $1.9 billion of bonds to help refinance debt coming due in 2013 and 2014. The sale was increased from $1.5 billion.
"It's still a pretty attractive place to issue for corporates," said Bradley Rogoff, head of global credit strategy at Barclays Capital, in an interview on Bloomberg Television's "InsideTrack" with Stephanie Ruhle. "Going forward, I think if we see some volatility but we reset at a slightly higher yield, you'll still see a decent amount of issuance."
Among planned issues is $1 billion from Inmet Mining Corp., the Toronto-based mining company, and $450 million from coal producer Penn Virginia Resource Partners LP, according to Bloomberg data.
Bloomberg News
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