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By Jonathan Stempel
NEW YORK, Aug 22 (Reuters) - General Motors Corp. and at least 20 other companies this week are selling more than $13 billion of bonds, as investors tired of near record-low U.S. Treasury yields gain confidence in corporate honesty and U.S. economic health.
General Motors Acceptance Corp., the finance arm of the world's largest automaker, conducted the week's largest sale so far, on Thursday selling $2.5 billion of five- and 10-year notes yielding less than 7 percent. Companies such as No. 1 financial services company Citigroup Inc. and media giant Viacom Inc. also are racing to lock in cheap financing.
"A lot of people need yield, and you can't get that in the Treasury market," said Joe Jackson, who helps invest $3 billion for BB&T Asset Management in Raleigh, North Carolina. He bought Citigroup's notes and planned to buy GMAC's 10-year notes.
Spreads, or the extra yield over Treasuries that companies pay investors to buy their bonds, had shrunk to 2.23 percentage points on Wednesday from a peak of 2.39 percentage points on Aug. 13, according to Merrill Lynch & Co.
Corporate bond issuance had totaled a mere $2 billion to $4 billion a week in the seven weeks following now bankrupt phone company WorldCom Inc.'s late June revelation that it misreported $3.85 billion of expenses.
Investors flocked to safety, sending 10-year Treasury yields to a record low 3.396 percent on August 13.
Late August is usually a slow period for corporate bonds, but investors said Aug. 14 was a catalyst for the market's current strength.
The passing of that day's U.S. Securities and Exchange Commission deadline for hundreds of chief executives to certify their companies' financial reports proved largely a non-event, with only a few companies owning up to problems.
Also on that day, local phone company SBC Communications Inc. sold $1 billion of bonds, despite being warned that its credit rating might fall. That convinced companies and investors that demand was strong for corporate debt.
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"There had been a fear that the credit markets were shut off to many companies," said Jackson. "Once the SBC deal went well, it confirmed the credit markets are in fact open."
Investors consider many companies that sold bonds during the post-WorldCom trough, including Gillette Co. and Procter & Gamble Co., "safe haven" names in times of market stress.
Michael Dineen, who helps invest $5 billion for MONY Capital Management in New York, said: "I'm not a treasurer, but typically in environments like this, higher-quality issuers lead the rallies. And then, once they sell bonds and the new-issue premiums start to narrow, you get momentum in the market. That's what we're seeing now."
Viacom, which owns the CBS and MTV television networks and Paramount Pictures, sold 10-year notes with a 5.625 percent annual interest rate, a full percentage point less than Viacom offered when it sold similar notes in May 2001.
GMAC drew about $6.5 billion of bids for its bond sale, which it increased 25 percent from $2 billion.
"The fact that a $2.5 billion transaction met with more than $6 billion of bids ... is a positive sign that investor demand is back for corporate product," said Jeff Kane, global head of syndicate at Banc of America Securities LLC, which helped arrange GMAC's sale. "We still have nowhere near the supply we saw in the first half of the year, but the pickup has stimulated demand rather than overwhelm it."