NEW YORK -- DaimlerChrysler on Wednesday raised $2.5 billion from a sale of five-year global notes, capping what is on pace to be the busiest month of corporate bond issuance in the U.S. markets this year.
The lowest interest rates in at least a generation have unleashed a flood of bond sales as companies refinance higher-coupon debt or lock in low rates for future needs.
DaimlerChrysler's sale brings expected total investment-grade issuance this month to about $64.4 billion, according to Thomson Financial and Reuters data, just shy of March's $65.4 billion, which was the most of any month this year.
Companies' incentive to refinance is strong as coupons on some new deals hit record lows. The Gillette Co. earlier this month sold $300 million of five-year notes with a 2.5 percent coupon, the lowest ever for a five-year bond, according to Thomson Financial.
Meanwhile, with yields on alternatives such as safe Treasuries near 45-year lows, investor demand for corporate debt has been strong.
"They're more attractive than any other fixed-income asset class right now," said Joe Jackson, portfolio manager for BB&T Asset Management.
SALE TERMS
DaimlerChrysler, the world's third-biggest automaker, sold the notes through its DaimlerChrysler North America Holdings unit. The 3.75 percent notes yielded 3.826 percent, or 1.49 percentage points more than Treasuries. Proceeds will be used for general corporate purposes, a company spokesman said.
When the unit last sold five-year notes in January, they yielded 4.793 percent or 1.625 percentage points more than Treasuries.
Automakers' bonds were one of the poorest performers in the corporate market last year as a wave of bankruptcies and accounting scandals soured investors on heavily indebted companies. With bankruptcies and accounting debacles waning, the sector has enjoyed a turnaround, yet some investors believe it has come too far too fast.
"The corporate market has had this phenomenal run and is due for a real breather, and (autos) might well be a poster child for that," said Mitchell Stapley, chief fixed-income officer for Fifth Third Investment Advisors, who said he did not participate in the deal.
Another worry is that automakers' fortunes are closely tied to the economy, which is struggling with excess capacity, especially in the manufacturing sector.
"All you have to do is look at the durable goods numbers this morning to realize it's not exactly a big-ticket-item economy right now," Stapley said.
Slumping demand for cars and military aircraft pushed orders for durable goods sharply lower in April, according to a Commerce Department report on Wednesday.
CHRYSLER TURNAROUND A PLUS
Still, DaimlerChrysler has been viewed as a stronger credit than General Motors or Ford Motor Co., with more manageable pension liabilities, analysts said.
"A lot of people have viewed (DaimlerChrysler) somewhat favorably because they did stop the bleeding at the Chrysler division earlier than projected," said Steven Bocamazo, a fixed-income analyst for Loomis Sayles & Co.
Automakers' bonds also are among the few sectors left where investors can find yield, strategists said.
"This is the cheapest sector of the industrial market and close to being the cheapest sector of the investment grade market so you're making a big bet if you're completely out the autos," said Fifth Third's Stapley.
