Apple Inc., International Business Machines Corp. and Texas Instruments Inc. led dollar-denominated bond sales of $43 billion in the busiest week this year for high-grade technology companies as relative yields narrowed.
Apple, the largest U.S. maker of smartphones, set a record for the biggest corporate bond sale ever with its $17 billion six-part offering on April 30, according to data compiled by Bloomberg. IBM raised $2.25 billion and Texas Instruments sold $1 billion, bringing the number of investment-grade technology issuers in the market to three, the highest this year.
Apple kicked off the rush of issuance when it announced on April 23 that it was planning to raise debt for the first time in almost two decades to help fund a $100 billion capital reward for shareholders. Microsoft Corp., the world's largest software maker, came to market later that week with a $2.67 billion offering in euros and dollars followed by Texas Instruments, in their first sales this year, and IBM, which obtained record-low coupons on its first sale in three months.
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"It definitely wakes you up, because if a competitor of yours is starting to do or change strategies, you're going to take note," William Larkin, a fixed-income portfolio manager who helps oversee $500 million at Cabot Money Management Inc., said in a telephone interview from Salem, Massachusetts. "There is always a herd mentality, because it's how you survive."
The extra yield investors demand to own corporate bonds rather than government debentures narrowed to 208 basis points as of yesterday from 212 basis points on April 26, according to Bank of America Merrill Lynch index data. Yields decreased to a record-low 3.35 percent from 3.38 percent.
Offerings increased from $39.4 billion last week and were the most since $47.3 billion in the five days ended March 22, Bloomberg data show. Apple's offering helped push sales in April to $148.6 billion, the most ever for the month in data going back to 1999, and the busiest period since January's $171 billion.
The fall in Treasury yields "has encouraged issuers to maybe think, 'Is this the last opportunity we've got to take advantage of the low-rate environment?'" Jonathan Fine, head of investment-grade syndicate for the Americas at Goldman Sachs Group Inc. in New York, which helped manage the Apple sale, said in a telephone interview. "Demand for well-rated, large-cap companies is extraordinary right now."
The 10-year Treasury note's yield has dropped to 1.7 percent from 2.06 percent on a closing basis on March 11, the highest in about a year.
Apple Participation
Orders for the Apple sale totaled $52 billion, according to a person familiar with the transaction, who asked not to be identified citing lack of authorization to speak publicly. The Cupertino, California-based company sold its first bonds since 1996, issuing $3 billion of floating-rate notes and $14 billion of fixed-rate securities, Bloomberg data show.
"The strength of the Apple credit drove participation globally," Matthew Siracuse, a managing director in global risk syndicate at Deutsche Bank AG, which also helped run the Apple deal, said in a telephone interview. "We saw good participation from both European as well as Asian accounts."
The offering's largest portion, $5.5 billion of 2.4 percent, 10-year securities paying a 75 basis-point spread, traded at 100.247 cents on the dollar to yield 2.37 percent, a spread of 74.2 basis points, at 8:24 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The floating-rate portion included bonds due in 2016 and 2018, Bloomberg data show.
"We're seeing a deeper bid for floating-rate notes," Siracuse said. "There is a subset of the overall market that believes rates are going to go higher and is being more defensive."
Sales of investment-grade debentures reached at least $37.6 billion, compared with $31.2 billion last week and a 2013 weekly average of $23.4 billion, Bloomberg data show.
Yields on investment-grade debt fell to a record-low 2.647 percent yesterday from 2.66 percent on April 26, according to the Bank of America Merrill Lynch U.S. Corporate index. Spreads were unchanged at 147 basis points.
Texas Instruments, the largest maker of analog semiconductors, issued equal $500 million portions of 1 percent, five-year notes that pay a relative yield of 55 basis points and 2.25 percent, 10-year bonds with a spread of 85, Bloomberg data show. Proceeds from the sale will be used to repay debt including its $500 million of 0.875 percent notes maturing May 15, the Dallas-based company said May 1 in a regulatory filing.
Record Coupon
"When treasurers get a chance to look back at what we're experiencing today, and the coupons they're achieving, they'll say, 'Those were the good old days.'" Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, which helped sell the Texas Instruments bonds, said in a telephone interview. "We're in the middle of it right now."
IBM obtained a record-low 1.625 percent coupon on $1.25 billion of notes due May 2020, beating a 1.65 percent rate on $750 million of debt sold last July by Texas Instruments, Bloomberg data show. The largest computer-services provider also sold $1 billion of three-year debt at a 0.45 percent coupon, matching a record-low for that maturity obtained by Apple Inc., Texas Instruments, Unilever Plc and Walt Disney Co.
Offerings of speculative-grade bonds reached at least $6 billion, compared with $7.8 billion last week and a 2013 weekly average of $8.2 billion, Bloomberg data show.
Yields on junk debt fell to a record-low 6.085 percent yesterday from 6.16 percent on April 26, according to the Bank of America Merrill Lynch U.S. High Yield index. Spreads narrowed 15 basis points to 445 basis points.
High-risk, high-yield bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- at Standard & Poor's.
Issuers planning sales include Seven Generations Energy Ltd. with a $250 million offering of seven-year notes and ION Geophysical Corp. with a $175 million deal, Bloomberg data show.
Bloomberg News
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