A New Low in Bond Markets

With wild and wacky swings in stocks and new low yields on U.S. Treasuries getting lots of press, it’s easy to have missed the action in the corporate bond market.  Reuters listed more than $21 billion of high-grade corporate debt issued last week.

More than half of the new debt was issued by the seven companies listed below.  Mickey, Minnie, and company set new record lows for five-, 10-, and 30-year yields when Disney (NYSE: DIS  ) came to market.  The previous record for five-year debt was held by Colgate-Palmolive; Johnson & Johnson held the old 10- and 30-year records.  The credit rating on Disney’s new paper is solidly investment grade but doesn’t score AAA.  That means there’s room for even lower rates for the best of the best credit quality.

Ten-year issues bracketed the latest 12-month inflation reading of 3.6%, meaning a lot of bond investors out there are willing to trade a loss in earnings power for the perceived safety of the high-quality credit markets.

Company

Amount Issued

Yield at Issue Price

Maturity

AT&T (NYSE: T  ) $5 billion

2.47%-5.60%

5, 10, and 30 years

Northern Trust (Nasdaq: NTRS  ) $500 million

3.43%

10 years

Occidental Petroleum (NYSE: OXY  ) $2.15 billion

1.93%-3.34%

5.5 and 10.5 years

Progressive (NYSE: PGR  ) $500 million

3.76%

10 years

Southern (NYSE: SO  ) $500 million

1.98%

5 years

VF (NYSE: VFC  ) $900 million

Floating-3.54%

2 and 10 years

Disney $1.85 billion

1.52%-4.44%

5, 10, and 30 years

Source: Reuters.

Southern will be using part of the proceeds to pay off some short-term debt.  VF is using the money to finance its Timberland acquisition; shareholders should be happy that these low rates make adding boots to VF’s lineup a little less expensive than a few weeks ago.  The SEC filings from the other five had little beyond “general corporate purposes.”

As a stock investor, it’s easy to ignore the bond market, but a look at debt and how a company uses that money should be a part of Foolish investment research.  In today’s market, companies with solid credit ratings are having no trouble rolling over maturing debt or financing operations, acquisitions or capital investments at very low rates.  That means less money going out the door for interest payments and more money to invest in the company or distribute to shareholders. 

You can follow any of the stocks mentioned using our free watchlist service, My Watchlist.

Fool contributor Russ Krull owns shares of AT&T and Southern, but has no position in any other stock mentioned. Motley Fool newsletter services have recommended buying shares of Walt Disney, Southern, and AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 22, 2011, at 11:22 AM, marketmaker2100 wrote:

    I'm not impressed with the majority of the securities listed here. However, OXY is a real diamond in the rough. Not only is the organization undervalued, but it is outperforming its peers in a number of key metrics including long-term and short-term debt (http://www.icincome.com/stock/oxy).

    Bonds would be an interesting play for OXY, but I think that the organization is strong enough and stable enough to buy outright. Therefore, I'm long on OXY! The only other pick that I would consider on this list is VFC, but I'm not sold on their strength. I would likely execute a short position on the others with the exception of Disney (I'm neutral on them).

  • Report this Comment On August 23, 2011, at 6:24 PM, PostScience wrote:

    Dear Apple,

    Please borrow $100 billion at 1% and start paying a 8% dividend.

    Sincerely,

    Apple Investor

  • Report this Comment On August 23, 2011, at 7:25 PM, rd80 wrote:

    @marketmaker2100 - I didn't intend the list to be a positive or negative comment on the stocks listed, only a summary of who's been borrowing and, where available, what they're doing with the money.

    @PostScience - Yep, at today's rates, you could certainly make a case that it makes sense for Apple to tap the bond market and use the money for a dividend or buyback. Could also make the case that Apple should start distributing some of its cash pile with or without tapping credit markets.

    Many thanks for the comments.

    Fool on!

    Russ

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