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Sept. 29 (Bloomberg) -- The busiest month for corporate- bond offerings in a year has slowed to a trickle.
After $180 billion of issuance in the U.S. in September, General Cable Corp. withdrew its proposed sale citing “uncertain and weak overall conditions in the high yield debt market,” according to a company statement today. Concessions on new investment-grade bonds reached a one-year high this month, according to a Sept. 26 JPMorgan Chase & Co. report.
“A combination of heavy supply in September and also a few larger deals in the past few weeks have driven up concessions,” Meghana Chugani, associate for JPMorgan’s U.S. High Grade Strategy & Credit Derivatives Research team, wrote in an e-mail.
Companies paid 12 basis points more in relative yields than investors accepted for their outstanding bonds with similar maturities, known as concessions, JPMorgan data showed. A basis point is 0.01 percentage point.
Even after the Federal Reserve stuck to its pledge on Sept. 17 to keep benchmark interest rates near zero for a “considerable time,” investors are starting to prepare for eventual rate increases.
Speculative-grade companies including Burger King Worldwide Inc. issued about $17 billion in speculative-grade debentures during the last two weeks of September after selling $30 billion in the first half of the month, according to data compiled by Bloomberg.
Junk bond issuance “has been very sensitive to the yields and spreads of high-yield bonds,” John Lonski, chief economist at Moody’s Capital Markets Group, said in a Sept. 26 telephone interview.
Speculative-grade yields have risen to an 11-month high of 6.68 percent from a record low of 5.69 percent in June, according to the Bank of America Merrill Lynch U.S. High Yield Index.
“Bouts of volatility will be episodic as the high-yield market adjusts to a reality of eventual higher interest rates,” Robert Smalley, head of the credit desk analyst group at UBS AG in New York, said in a Sept. 26 telephone interview.
Speculative-grade, high risk bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
Total corporate bond sales this month are likely to be exceeded only by September 2013, which included the record- breaking $49 billion offering from Verizon Communications Inc., according to data compiled by Bloomberg that stretches back to 1999.
“September supply was strong as issuers may have opportunistically entered the markets ahead of rising rates,” Chugani said.
Roche Holding AG, the world’s largest maker of cancer drugs based in Basel, Switzerland, and Houston-based food distributor Sysco Corp. led more than $134 billion of investment-grade bond sales in September as issuance accelerated after the Sept. 1 Labor day holiday in the U.S.
High-grade sales have slowed to $52 billion in the last two weeks from $82 billion in the first part of the month, Bloomberg data show.
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