Friday, August 7, 2009

Recent activity reveals huge demand for corporate bonds (CCE)


Bloomberg is out this morning citing all-time low spreads (the extra yield a company needs to offer above government bonds) on recent Coca-Cola (CCE) and Magellan Midstream (MMP) issuance:

"Coca-Cola Enterprises sold 4.5 percent notes that priced to yield 4.63 percent, the lowest interest rate ever paid by the world’s largest soft-drink distributor on 10-year debt, according to data compiled by Bloomberg. The yield was 90 basis points above the comparable Treasury note.

Magellan Midstream reopened its 6.55 percent notes due in 2019 at a spread of 185 basis points over benchmarks, or a yield of 6.6 percent, Bloomberg data show. That’s the lowest spread that the company paid on 10-year debt since 2004, when it issued notes that priced to yield 175 basis points more than Treasuries."

The low yield is due to historically low treasuries. But the low spread is indicative of huge investor appetite for the bonds. I wouldn't be surprised if the huge demand is in part due to the reduced safety of owning common stock as of late.

The cheap yields cited above show the extremely reasonable cost of capital for well-run firms with stable cash flows. They're smart to raise as much money in this environment as possible, as interest rates can't go down much further (financing will be more expensive in the future).
Some other actively traded issues:

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