Encouraged by signs of a global economic recovery, investors were willing to lend money at lower interest rates, allowing companies such as General Electric (GE), Johnson & Johnson (JNJ) and Walmart (WMT) to sell bonds and refinance debt cheaply.
Billions Saved on Interest
Yields on investment-grade corporate bonds worldwide fell to an average of 3.36% on Oct. 11 from last year's high of 7.41% on March 17, according to the Bank of America Merrill Lynch Global Broad Market Corporate Index. This difference translates into savings for the average borrower of $4.05 million annually for every $100 million of bonds sold. However, yields have been on the rise recently.
The market was also led by the highest-ever issuance of junk-rated debt as rates on high-yield bonds also fell. Over 500 speculative-grade companies, such as Ally Financial and Ford Motor Credit (F), sold $287 billion of debt in the U.S., easily surpassing the previous record of $162.7 billion in 2009. The riskiest of borrowers (below Caa1 by Moody's or an equivalent CCC+ by S&P) made up 16% of issuance, up from 8.5% in 2009.
JPMorgan Chase (JPM) issued $15.4 billion of debt, and General Electric Capital offered $12.8 billion, leading non-state-guaranteed corporate bond sales in dollars.
Kraft Foods (KFT) and Warren Buffett's Berkshire Hathaway (BRK.A) were also among big sellers of bonds to refinance the acquisitions of Cadbury and the Burlington Northern Santa Fe railroad, respectively. Banks expect such financing for mergers and acquisitions may make up a greater part of bond sales next year.