t. man hatter
A headline on a story in the Financial Times today, "Corporate bond sales at five-year high," discusses how corporations worldwide, exploiting low rates and investor demand, flocked to the market in the first half of this year, making it the highest sales in the first half of a year since 2009.
The list of sellers reads like a who's-who of corporate royalty: Verizon, Walmart, Cisco and big banks like Wells Fargo, Bank of America and BNP Paribas. One can understand BNP's coming to market. They obviously want to recoup some of that big fine money French politicians are so upset about.
So far $1.8 trillion has been sold with financial firms doing the bulk of the selling, $1 trillion, while non-financial firms sold roughly $836 billion, according to Standard and Poor, the big bond rating agency.
Most of the bonds had investment-grade ratings, but junk borrowers managed to squeeze in $290 billion. Europe got in its share, issuing around $800 billion, according to the report.
Corporate default rates remain low, 1.8 percent, for the first half of 2014, giving the yield-starved a further boost of confidence or, as some might say, complacency. So far total returns for dollar denominated bonds, 5.6% to date, for long-dated bonds, those maturing in 10 or more years, add to their attractiveness
By comparison junk bonds have returned 5.5% and U.S. Treasuries 2.5%, again pushing yield-conscious but premium-risk-deaf investors further into what could turned out to be really ugly terrain when interest rates rise.
The huge much-disdained and much-shopped giant, Walmart, floated a $1 billion, 30-year puppy. This was Walmart's first such deal in several years. Though we don't have the coupon rate, one can only assume, given current rates, that in 20 years its holders will most unlikely be unable purchase even the firm's cheapest trinket with the annual interest payment.
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