Sales of longer-term bonds are accelerating at a record pace in the US, with corporate borrowers from Morgan Stanley to FedEx selling 30-year debt for the first time in at least a decade.
According to data compiled by Bloomberg, issuance of investment-grade bonds maturing in 30 years or more totals US$83.6bn to date during 2012, already exceeding the annual total in 2010 and 2011. Offerings are growing about six times faster than the overall high-grade market.
Corporate treasurers are exploiting record-low borrowing costs as the Federal Reserve says it will hold its target interest rate at between zero and 0.25% through at least late 2014. An average yield of 4.57% on investment-grade securities maturing in 15 years or more is lower than the rate borrowers paid in 2009 to raise funds due in one to three years.
“Issuers are viewing it as maybe a once-in-a-lifetime opportunity to fund at the levels that they can in the long end of the curve,” said Jonathan Fine, Goldman Sachs’ head of investment-grade syndicate for the Americas. Low Treasury yields are “encouraging issuers to layer in more longer-dated debt,” he said.
While investors’ growing appetite for long bonds is a boon to companies, demand is also helping to send duration, a measure of securities’ price sensitivity to yield changes, to the highest level in almost two decades for all investment-grade debt, according to the index issued by Bank of America Merrill Lynch (BofA Merrill).
“Investing in long-term debt with yields so low carries enhanced risk,” said Alan Shepard, an analyst at Madison Investment Holdings. “There might be some parts of that story that don’t end well for investors. But if you’re a corporate treasurer, you’re doing what you’ve got to do.”
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