Some of the biggest companies in the world are piling into the European and U.S. bond markets in what’s shaping up to be one of the busiest weeks for issuance this year.
In Europe, sales almost doubled from Monday to 11.1 billion euros ($12.6 billion) with Kellogg Co. and Pernod Ricard SA among the latest issuers to take advantage of borrowing costs near record lows.
Warren Buffet’s Kraft Heinz Co. led companies in selling almost $9 billion of bonds in the U.S. market on Tuesday after more than $25 billion of company debt was issued on Monday, making it the second-busiest day of the year. At this pace issuance is poised to exceed the $63 billion of bonds sold during the five-day period ending Jan. 15, the busiest week this year.
“I wouldn’t be surprised to see more and more corporate issuance,” said Jack McIntyre, a money manager in Philadelphia at Brandywine Global Investment Management.
Dell Inc. said on Tuesday that it’s planning to offer a series of secured bonds to fund its $67 billion acquisition of EMC Corp. The company may offer about $16 billion of high-grade secured bonds, a person with knowledge of the matter said last week. Investor calls are scheduled from May 11 to May 13, according to a second person.
Investors have a real incentive to buy company debt. While yields on corporate securities worldwide have declined in the last few months to 3.5 percent, they are a better option than the $9.2 trillion of bonds that have negative yields thanks to the easy-money policies of central banks in Europe and Japan.
“The cost of financing is just a lot less today than it has been in the past year or so,” McIntyre said.
European companies are flocking to the market after demand built up during blackout periods related to earnings and because of national holidays in the region last week. U.S. issuers are taking advantage of low Treasury rates and equities gains to front-load deals before the summer sales slowdown sets in.
“Sentiment in the market is good and everything seems to be moving in the right direction,” said Dominique LeMaire, head of lending services and debt capital market at ING Bank NV in London.
Kellogg, the world’s largest cereal maker, sold 600 million euros of bonds Tuesday, according to data compiled by Bloomberg. Pernod Ricard, the French distiller of Absolut vodka, also sold 600 million euros of bonds, according to a person familiar with the sale, who asked not to be identified because they’re not authorized to speak publicly. The deals follow 5.5 billion euros of issuance on Monday.
Companies in the U.S. are motivated to issue bonds before the market slows down for the summer, said Jody Lurie, a credit analyst at Janney Montgomery Scott. Subdued issuance during the first-quarter commodities rout has also contributed to a backlog of deals.
“While we’re not anywhere out of the woods, investors are a little bit more comfortable taking risk than they were,” Lurie said.
The European Central Bank’s inclusion of corporate debt in its quantitative easing shopping list has driven borrowing costs to the lowest in a year, according to Bank of America Merrill Lynch index data.
Johnson & Johnson has also hired banks for its first euro bond sale in more than eight years, according to a person familiar with the matter.
Officials at Kellogg, Pernod Ricard and Johnson & Johnson weren’t immediately available for comment on the sales.
Bond sales may slow down in the U.S. later this week after the rush of deals on Monday and Tuesday, Lurie said. “Investors need to digest all the issuance volume that’s occurred,” she said.
In Europe, top-rated firms have sold about 70 billion euros of bonds since the ECB outlined the corporate debt plan on March 10, surpassing the 49 billion euros sold this year up to that point, according to data compiled by Bloomberg.
“A pipeline has been building since earnings, and funding spreads and yields have rarely been better for issuers,” said Frazer Ross, co-head of corporate investment grade syndicate at Deutsche Bank AG in London. “We’ve already seen some big European companies issue, and we’re now seeing some big U.S. names come too.”
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