Investor orders for one of the largest corporate bond sales of the year stretched into the tens of billions of dollars on Friday as US chipmaker Qualcomm sewed up the financing for its $47bn takeover of NXP Semiconductors.
The interest underlined the appetite from investors across the globe for higher-yielding US corporate bonds, as more than $10.7tn of debt trades with a sub-zero yield. The $11bn bond sale, which tied as the year’s third-largest corporate debt deal, had attracted orders of more than $40bn, two investors with knowledge of the sale said.
Low global interest rates coupled with central bank easing in Europe and Japan have driven investors into the US credit market in their search for income. Investment grade corporate bond funds in the US have counted nearly $55bn of inflows this year, according to Lipper.
Andrew Forsyth, a portfolio manager with BNP Paribas Investment Partners, said that there was “strong demand” from both domestic and foreign investors for US corporate credit.
If a company is a “highly-rated credit . . . people are going to be all over it. Fund flows are still very positive,” he said.
The solid interest allowed underwriters to tighten Qualcomm’s borrowing costs across the nine-tranche transaction. Investors were initially marketed $2bn of new 10-year notes with a yield 125 basis points above benchmark Treasuries. That spread was cut to 105bp by the time banks closed their order books.
Existing Qualcomm debt due in 2025 last traded hands with a yield 77bp above similarly maturing Treasuries. The company issued new fixed- and floating-rate debt across two- to 30-year tenors on Friday.
Matt Brill, a portfolio manager with Invesco, characterised the demand as “off the charts”, particularly after a global equity sell-off earlier this week damped investor enthusiasm. US stock markets rebounded on Thursday and Friday, providing Qualcomm an opening for its $11bn bond sale, he said.
“The reach for yield has been exacerbated because Treasuries have held in and if you want additional yield you have to get . . . into credit,” he said. The yield on the 10-year US Treasury, which falls as its price rises, has declined 39bp from a March high. It was at 2.34 per cent on Friday.
“Just buying Treasuries won’t get you above your yield hurdle,” Mr Brill added. “It forces investors to take on additional credit risk.”
Companies and banks have borrowed more than $750bn through US debt markets this year, the second-fastest pace on record, Dealogic data show. Microsoft completed the largest deal of 2017 in January, raising $17bn, which is trailed by a $13.6bn bond sale by chipmaker Broadcom.
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