Newscorporate bond sales, borrowing costs, Credit market, interest rate, US Federal Reserve
Jan 07, 2016 02:14 AM EST
The world's largest entertainment company Walt Disney Co has sold $3 billion of debt. Other corporate majors' financial arms are also taking up corporate bond sales involving over $1 trillion of investment for the fifth consecutive year. Yields on investment grade bonds rose to four-year high of 3.71 percent in December 2015.
The beginning of 2016 witnessed encouraging investor response to the bond sales. Majority of American companies preferred to take zero rate advantage before Federal Reserve announcing the rate hike. The US companies sold $1.621 trillion in debt in 2015.
Disney Co is offloading $3 billion of debt in five parts, according to data by Bloomberg. Issues from the financing arms of Ford and Deere were also among the 10 deals since 11 December 2015. Along with Walt Disney Co, Ford Motor Co and Deere & Co are leading the corporate bond sales in 2016.
According to Bank of America Merrill Lynch index data, the borrowing costs are still below average of 4.49 percent for the past 10 years. Analysts are optimistic about ample opportunities in corporate bonds as 2016 progresses. Some of the bonds have already priced in the rate hike cycle as US Federal Reserve in December hiked interest rate. Investment analysts recommend that bonds should be in one's portfolio.
Anthony Valeri, an investment strategist at LPL Financial, said: "Yields are higher and credit-market weakness will push more discipline on borrowers. But as long as borrowing costs stay low relative to history, the heavy pace of issuance should continue."
After the three-week sluggish period, bond sales are gearing up as Walt Disney have Ford Motor have tapped the market, reports The Wall Street Journal (WSJ). The latest round of bond sales is a sign of investor confidence as the US economy is entering eighth year of recovery. Analysts hope that 2016 will see strong sales and performance in the corporate bond market.
Walt Disney's shares were up 12 percent in 2015 as against the 0.73 percent drop of Standard & Poor's 5000 index. 7percent notes of Disney are maturing in 2032 were giving yield of 0.96 percent in 2015. It's considered to be better performance considering the US investment grade debt posted 0.632 percent loss.
According to The Business Times, the acquisitions propelled the bond sales by investment-grade companies to $1.31 trillion in 2015. It's estimated that about $627 billion worth mergers to take place in 2016. Bank of America forecasts $1.22 trillion in issuance. Morgan Stanley predicts $1.05 trillion, Wells Fargo & Co expects $1.24 trillion and Barclays Plc forecasts $1.34 trillion.
Ford Motor Credit offloaded three-part issue giving total value of $2.75 billion. This also included 10-year bonds at 2.15 percentage point to benchmarks. John Deere Capital also sold three parts deal with combining value of $1.5 billion.