By Patrick McGee
High-grade companies are making up for lost time in the U.S.
debt markets.
Bankers were expecting upward of $30 billion in high-grade bond
deals this week, but it has been all quiet amid the fallout from
Hurricane Sandy. That was changing Thursday, with at least nine
borrowers tapping the market.
Heavy hitters include defense contractor General Dynamics Corp.
(GD), the financing units of BP PLC (BP) and Caterpillar Inc.
(CAT), and the Bank of Montreal (BMO).
The size of the deals will be determined in the coming hours,
but the total was expected to be $7.6 billion at least.
The comeback is "obviously a sign of strength for the market,"
said John D. Ryan, portfolio manager at DWS Investments in New
York.
Early indications suggest the balance of power remains with
issuers rather than investors. The large companies are taking
advantage of recent strong demand, as shown by the heavy cash flows
into credit markets, Mr. Ryan said. He said the deals were less
attractive for investors than for the borrowers.
"Looks like fair-value at best," he added. "There's really
nothing that enticing so far."
High-grade corporate bonds have been one of the biggest
beneficiaries of the Federal Reserve's latest efforts to stimulate
the economy by buying bonds--its third round of quantitative
easing, known as QE3.
While Treasurys and U.S. mortgage-backed securities delivered
negative total returns last month of -0.17% and -0.18%,
respectively, high-grade corporates gained 1.29%. Financial bonds
with long maturities, a subset of corporates, led the way with a
2.84% return. "Junk"-rated corporates returned 0.88%, according to
Barclays indexes.
The outperformance of corporate bonds "highlights that investors
taking profits on the mortgage rally are staying with higher-rated
asset classes rather than chasing yield," wrote J.P. Morgan credit
strategist Eric Beinstein on Thursday.
Markit's CDX North America Investment-Grade Index, a proxy for
investor confidence, suggests investors continued to look favorably
at the asset class Thursday. It improved 2% in late-morning
trading.
The General Dynamics deal includes five, 10- and 30-year
bonds.
BP Capital Markets, a financing arm of the oil company, is
selling three-, five-, and 10-year bonds.
Caterpillar Finance, an arm of the machinery manufacturer, plans
to issue debt in three- and five-year maturities.
General Dynamics, Caterpillar and BP are all rated A2 by Moody's
Investors Service and an equivalent A by Standard & Poor's
Ratings Services and Fitch Ratings.
The Bank of Montreal, rated Aa2 by Moody's, A-plus by Standard
& Poor's, and AA-minus by Fitch, is issuing three- and 10-year
bonds.
Other deals include 10-year offerings from Stanley Black &
Decker Inc. (SWK), PNC Financial Services Group (PNC), and AutoZone
Inc. (AZO). There is also a 30-year sale from El Paso Pipeline
Partners Operating Co. (EPB) and a three-year deal from Capital One
Financial Corp (COF).
Write to Patrick McGee at patrick.mcgee@dowjones.com
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