By Patrick McGee
Seven companies are on track to sell at least $5.4 billion of
bonds in Monday's high-grade market.
The diverse range of borrowers include the Bank of New York
Mellon Corp. (BK), Barbie-maker Mattel Inc. (MAT), online shopping
retailer QVC Inc. and Indian telecommunications firm Bharti Airtel
Ltd. (532454.BY).
Bond issuance is picking up the pace as companies move on from
earnings season--typically a quiet period for companies--and focus
on funding needs. Weekly volume already climbed to $27 billion last
week, from an average of $15.5 billion in the prior four weeks.
But banks arranging new deals aren't exactly expecting March
madness: Estimates of high-grade bond volume for the month range
from $80 billion to $100 billion, up from $74 billion in February.
Last March saw $118 billion worth of deals, according to data
provider Dealogic.
Monday's biggest offering was a four-part, $1.5 billion offering
from BNY Mellon. The deal comprised three- and five-year bonds
offered in fixed and floating rates. The five-year floating-rate
tranche accounted for $600 million of the issue--double the size of
each of other tranches--confirming that investors are eager to own
bonds that retain value if interest rates rise.
Floating-rate notes feature interest payments that reset every
quarter. If interest rates rise this year--as many are
expecting--so do floating-rate payments. Such notes accounted for
nearly 10% of all deals last month, versus just 2% of deals in
2012.
Mattel raised $500 million of cash to pay off debts coming due
this year, including $350 million of five-year bonds maturing this
month. It paid yields of 1.705% on five-year notes and 3.172% on
10-year bonds.
QVC was on track to sell $1.05 billion of bonds due in 10 and 30
years. The bonds are expected to pay investors yields of 2.50 and
2.85 percentage points more than U.S. Treasurys with similar
maturities. The company is using the cash to buy back higher-rate
notes due in 2017 and 2019, according to a term sheet.
New Delhi-based Bharti Airtel borrowed $1 billion of cash in
10-year notes yielding 5.125%. The deal was the largest from a
private company in India this year.
Smaller issues Monday came from Verizon Communications Inc.
(VZ), M&T Bank Corp. (MTB) and Edison International (EIX)
utility Southern California Edison.
Low yields and strong demand are working to borrowers'
advantage. Average yields on high-grade bonds are down 0.11
percentage point over the past month, to 2.74%, according to a key
Barclays PLC Index. The drop in yield means borrowers can issue at
lower rates, but also indicates investors' portfolios performed
well in the past month, because bond prices rise as yields fall.
The Barclays index delivered a total return of 0.77% in February, a
decent rebound following a 0.89% loss in January. Bonds began the
year losing value as interest rates on Treasurys rose, hurting
prices.
According to fund tracker Lipper, investors have placed a net
$29.3 billion of cash into investment-grade mutual funds and
exchange-traded funds this year, with positive inflows in all nine
weekly reporting periods.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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