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Wal-Mart’s 0.75% coupon, the boom in covered bond offerings and merger mania in Malaysia.
By Marine Cole
A number of very large, high profile companies have tapped the bond market in recent days to take advantage of interest rates levels no one has ever seen before.
Wal-Mart Stores issued $5 billion of debt on Oct. 18, including three- and five-year notes with the lowest interest rates on record, according to Bloomberg. Wal-Mart's three-year bond was sold with a 0.75 percent coupon - yes, the decimal point is in the correct place - or just 30 basis points above comparable Treasuries. The coupon was the lowest on record for that maturity, according to Bloomberg, citing Bank of America.
The retailing giant also sold a five-year bond priced with a coupon of 1.5 percent.
EBay did nearly as well. It raised $1.5 billion of three- and five-year investment-grade corporate bonds. It issued $400 million of 0.875 percent, 3-year notes; $600 million of 1.625 percent, 5-year notes, and $500 million of 3.25 percent, 10-year securities, according to Bloomberg.
The wire service said the 3-year note coupon ties with bonds issued by Microsoft last month and PepsiCo last week. It was only higher than the debt sold by Wal-Mart.
PepsiCo's $500 million of three-year debt was priced to yield 0.890 percent or 35 basis points over Treasuries. Its $1 billion of 10-year debt was priced to yield 3.223 percent, or 75 points over Treasuries, and its $750 million of 30-year debt was priced to yield 4.887 percent, just 97 points over comparable Treasuries.
So far this year, total global issuance of high tech corporate debt, including high-yield debt, has reached $53.6 billion, up 15 percent from the same period last year.
Including the EBay offering from past week, the US ranks as the top nation for high tech investment-grade debt with 18 offerings and total proceeds of $22.8 billion, accounting for 56 percent of global offerings in the sector.
Elsewhere, in the merger and acquisition world, Malaysia was in the center stage with the tender offer from state-owned UEM Group and state pension fund the Employees Provident Fund Board to acquire the Plus Expressways BHD. The deal is worth $10.2 billion and is the largest transaction since records began in the country.
Altogether, there have been 46 announced deals in Malaysia in October alone for a total value of $10.8 billion, making it the largest month for Malaysian target M&A on record, according to Thomson Reuters.
Year-to-date, there have been 552 deals. This is the lowest number of deals at this point in the year since 2002.
However, year-to-date volume has surged to $22.5 billion, the highest year-to-date amount on record. And total annual value is poised to top the annual record of $26.9 billion set in 2006.
Meanwhile, in the US, while the foreclosure crisis is impacting banks and could force them to buy back mortgage-backed securities, the market for covered bonds is booming. Covered bonds resemble MBS but carry additional protection, making them less risky. Congress is currently working on regulating the covered bond market, which would further increase the number of offerings from US banks.
This week saw the third largest US-dollar covered bond offering on record with the $2.5 billion offering from Bank of Nova Scotia. With 27 offerings so far this year and total proceeds of $27.4 billion, 2010 has already broken all full-year records for US-dollar covered bonds, according to Thomson Reuters. Total issuance in 2009 was $2.8 billion from 10 offerings.
The market is even larger in Europe. Issuance of Euro-denominated covered bonds has reached $250.9 billion from 273 offerings, accounting for 85 percent of total global issuance. US-dollar covered bonds account for 10 percent of the market.
Euro covered bond issuance is up 45 percent from the same time last year, and global issuance has seen a 47 percent increase with total volume at the highest year-to-date level.
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