Low Rates Spur Record Debt Sales
In mid-September, home builder D.R. Horton Inc. sold $350 million of bonds at a yield of 4.375%, the lowest rate ever for a U.S. 10-year high-yield bond, according to Dealogic. This is what unintended consequences look like.</br></br>Rock-bottom interest rates resulting from the Federal Reserve's monetary policy are pushing investors of all sorts into riskier assets, creating an insatiable demand for investment-grade and high-yield, or "junk"-rated, corporate bonds.</br></br>Government-bond investors from the U.S. and Europe are buying more investment-grade corporate bonds even as traditionally cautious investment-grade investors and insurers jump into high-yield debt. Despite record new corporate-bond sales of $355 billion in the third quarter, demand still outstripped supply, allowing corporations and private-equity firms to borrow at all-time-low interest rates. In July, Texas Instruments Inc. and Unilever PLC both sold three-year bonds at a rate of 0.45%, the lowest ever for a corporate borrower, according to Standard & Poor's LCD.</br></br>"You don't usually see nontraditional investors come into credit when yields are at historic lows, but that's what's happening," said Andy O'Brien, co-head of global debt capital markets at J.P. Morgan Chase & Co.</br></br>The result: New bond sales are turning into scrums as portfolio managers look to fill orders.