Corporate bond sales worldwide topped $3 trillion for a second straight year, led by the highest-ever issuance of junk-rated debt, as borrowers locked in the lowest yields on record.
Rabobank Nederland, the world’s largest agricultural lender, and Fairfield, Connecticut-based General Electric Co’s finance unit led $3.19 trillion of offerings, according to data compiled by Bloomberg. Ally Financial Inc, Ford Motor Credit Co and 509 other speculative-grade companies sold $287 billion of debt in the US, smashing the previous record of $162.7 billion in 2009.
Signs the global economic recovery is gaining strength encouraged investors to lend money to borrowers at lower interest rates, allowing Johnson & Johnson and Walmart Stores to sell bonds at what were then record-low coupons. In the United States, bond funds took in $234.8 billion this year through October, while investors withdrew money from stock funds, according to the Investment Company Institute in Washington.
“This was a once-in-a-career opportunity to refinance everything you possibly could,” said James Kochan, who oversees $175.6 billion of bonds in Menomonee Falls, Wisconsin, as chief fixed-income strategist at Wells Fargo Funds Management.
Sales still declined 18 per cent from last year’s $3.88 trillion as governments withdrew bond guarantees for financial companies trying to weather the credit crisis. Concern that Europe’s sovereign debt crisis would worsen slowed sales in the region.
Yields on investment-grade corporate bonds worldwide fell to an average of 3.36 per cent on October 11, the lowest ever level for the daily data that began in 1996, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. Yields dropped from last year’s high of 7.41 per cent on March 17, 2009, translating into savings for the average borrower of $4.05 million annually for every $100 million of bonds sold.
Merrill’s global corporate index yielded 3.922 per cent yesterday, with the average spread unchanged at 1.69 percentage points. The Barclays Capital Global Aggregate Index of bonds has gained 0.07 per cent this month, taking this year’s advance to 4.26 per cent.
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Elsewhere in credit markets, Nakheel PJSC, which is behind the palm-shaped island development off Dubai’s coast, said it received funds from the city state’s government to repay Islamic bonds maturing next month.
Dubai fund
Nakheel, controlled by state-owned Dubai World, said it got money from the Dubai Financial Support Fund to pay $816.3 million in principal and $10.3 million in profit on the 2.75 per cent sukuk due January 16, 2011. Bondholders will also receive an additional payment of $45 million.
The developer said on December 29 it reached an agreement with 91 per cent of its trade creditors as it sought to delay payments on at least $10.5 billion of loans and bills. Dubai World, one of the emirate’s three main holding companies, gained approval from all its creditors to change terms on $24.9 billion of loans in October.