Six Companies Selling Long-Bonds in Improved Market
06/06/2012| 05:14pm US/Eastern
--Six high-grade companies sell bonds with 10+ year maturities
--Secondary market rallies alongside equities
--Sysco matches three-year 0.55% coupon record-low
(Updated throughout with bond pricing, buy-side commentary, Dealogic information and secondary trading data.)
By Patrick McGee
Deere & Co. (>> Deere & Company) appears to have inspired a host of companies to sell long bonds in the U.S. debt markets.
After the machinery maker sold $2.25 billion of 10-year and 30-year bonds at some of the lowest rates on record Tuesday, six companies opted Wednesday to lock in rates for the long haul.
Tyson Foods Inc. (>> Tyson Foods, Inc.) is leading the market with a $1 billion sale of 10-year notes, which it hopes to price at 2.90 percentage points over the Treasury rate. Earlier pricing guidance was 3 points, indicating strong demand has allowed Tyson to lower yields on the triple-B rated debt.
Other deals are relatively small, in line with expectations that this week would see only $10 billion of issuance.
Issuance has been relatively light recently given the volatile backdrop, but the rallying Treasury market has helped push corporate bond yields lower and enticed companies to replace existing debt with longer-maturity bonds.
Union Pacific Corp. (UNP) sold $600 million of bonds in 10.5- and 30-year maturities with respective yields at 1.30 and 1.58 percentage points over Treasurys, or 2.956% and 4.307%.
The Ohio National Life Insurance Co. priced $250 million of 30-year bonds at 6.875%, reflecting a 0.125 percentage point improvement from earlier pricing guidance.
Liberty Property Trust (>> Liberty Property Trust) increased the size of its 10-year offering by $100 million to $400 million, then priced it at 4.149%, or 2.5 points over Treasurys. And Duke Realty Corp. (>> Duke Realty Corp) is floating $250 million of 10-year paper at 2.80 points over Treasurys.
"Deere certainly provided comfort because the deal performed well," said a syndicate source in New York, adding that the $2.25 billion deal received $8.5 billion of orders.
He said new deals this week are seeing lots of demand, with price talk falling throughout the day as demand builds, allowing issuers to reduce their borrowing costs.
"That's become the modus operandi," he said. "It's giving issuers the comfort to move forward."
It doesn't hurt that broader market conditions improved markedly from Tuesday. The CDX North America Investment Grade Index, a proxy for risk sentiment, improved 2.8% in late Wednesday afternoon trading, according to Markit. And the S&P 500 rallied 2.3% on hopes that European officials are getting serious about rescuing Spain.
"If you have a day that seems to be a break in the storm, investors rush in to take advantage of it," said Scott MacDonald, head of research for MC Asset Management Holdings.
He said there has been pent-up demand from investors seeking to put money into new deals, and Wednesday's plain-vanilla offerings fit the bill. Diverse as the deals were, each is considered a safe bet with little exposure to Europe, he said.
All 15 of the most actively traded bonds were on the upswing, according to MarketAxess. The 30-year Deere bonds, which were issued at a spread of 1.30 points Tuesday, are now trading at a spread of 1.20 points. Spreads on the three most active bank bonds have tightened about 0.14 point each.
Elsewhere in the primary market, Sysco Corp. (>> SYSCO Corporation) sold $450 million of 10-year notes at 2.747%, or 1.10 points over Treasurys, plus $300 million of three-year notes yielding 0.78%, or 0.42 points over Treasurys.
Sysco's three-year notes were priced at a coupon of 0.55%, matching the record-low set by International Business Machines Corp. (IBM) in February, according to Dealogic, whose records go back to 1995.
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