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US Corp Bonds - End unchanged amid supply boom

By Nancy Leinfuss

NEW YORK, May 29 (Reuters) - U.S. corporate bond yield spreads gave back some earlier gains with stocks to end mostly unchanged on Thursday, while companies capitalized on lower interest rates to unleash more supply, traders said.

"We opened at tighter spreads earlier in the session, but as stocks sold off we gave that back," said one trader. "Much of the focus has been on supply. Deals are meeting with good demand and tightening on the break."

Spreads, the extra yield corporate bonds pay over Treasuries, were unchanged in late trading after erasing an earlier 0.01 to 0.02 percentage point narrowing, traders said.

On Thursday, Kellogg Co. , the largest U.S. cereal maker, sold $500 million in five-year global notes to yield a spread of 0.63 percentage point over Treasuries. Later, the issue narrowed to 0.61 percentage point, traders said.

"That deal went very well. It's a name you just can't get enough of," said one market player.

In this week's largest sale, DaimlerChrysler North America Holdings' $2.5 billion five-year notes were also yielding a tighter 1.44 percentage points spread over Treasuries, 0.04 percentage point tighter than issue spread, traders said.

Firms have sold more than $290 billion of high grade bonds this year, according to Thomson Financial, roughly matching the strong pace in the same period last year, as an unexpected drop in interest rates continues to spur refinancings.

Benchmark Treasury 10-year note yields have dropped to 45- year lows, reducing the costs of borrowing for U.S. companies. Ten-year note prices were up 24/32, as their yields fell to 3.33 percent in late session trading.

The high yield market saw its fourth largest issuance month ever in May as companies sold $15.7 billion of deals via 58 offerings. The volume nearly doubled April's $8.6 billion issuance level, according to Thomson.

Convertible sales have also mushroomed amid improved investor sentiment toward companies that suffered in the stock bear market of the past three years.

On Thursday, Lucent Technologies Inc. , the largest U.S. telecommunications equipment maker, boosted the size of its convertible sale to $1.5 billion from $1.3 billion, sources said. Still, more convertible sales are pending.

To see other recent or upcoming sales, click on [nNEUBD4].