Sales of longer-term bonds are accelerating at a record pace inthe U.S., with corporate borrowers from Morgan Stanley to FedExCorp. each selling 30- year debt for the first time in at least adecade.

Issuance of investment-grade bonds maturing in 30 years or moretotals $83.6 billion since year-end, already exceeding the annualtotal in 2010 and 2011, according to data compiled by Bloomberg.Offerings are growing about six times faster than the overallhigh-grade market.

Corporate treasurers are exploiting record-low borrowing costsas the Federal Reserve says it will hold its target interest rateat between zero and 0.25 percent through at least late 2014. Anaverage yield of 4.57 percent on investment-grade securitiesmaturing in 15 years or more is lower than the rate borrowers paidin 2009 to raise funds due in one to three years.

“Issuers are viewing it as maybe a once-in-a-lifetimeopportunity to fund at the levels that they can in the long end ofthe curve,” Jonathan Fine, Goldman Sachs Group Inc.'s head ofinvestment-grade syndicate for the Americas in New York, said in atelephone interview. Low Treasury yields are “encouraging issuersto layer in more longer-dated debt,” he said.

While investors' growing appetite for long bonds is a boon tocompanies, demand is also helping to send duration, a measure ofsecurities' price sensitivity to yield changes, to the highestlevel in almost two decades for all investment-grade debt, Bank ofAmerica Merrill Lynch index data show.

“Investing in long-term debt with yields so low carries enhancedrisk,” Alan Shepard, an analyst at Madison Investment HoldingsInc., which oversees about $16 billion from Madison, Wisconsin,said in a telephone interview. “There might be some parts of thatstory that don't end well for investors. But if you're a corporatetreasurer, you're doing what you've got to do.”

Elsewhere in credit markets, the extra yield investors demand tohold corporate bonds globally rather than government debt narrowedfor a 10th week to the lowest level in a year. The cost ofprotecting company obligations from default in the U.S. declinedfor a fifth week as offerings rose. Leveraged loan prices touchedthe highest in more than a year.

Global Spreads

Relative yields on company bonds from the U.S. to Europe andAsia tightened 7 basis points last week to 191 basis points, or1.91 percentage points, the lowest since Aug. 8, 2011, according toBank of America Merrill Lynch's Global Broad Market Corporateindex. Spreads have declined from 236 on June 1, the highest sinceJanuary. Yields fell to 2.97 percent from 3.03 percent on Aug.3.

The Barclays Global Aggregate Corporate Index has gained 0.04percent this month, pushing returns for the year to 6.31percent.

The Markit CDX North America Investment-Grade index, acredit-default swaps benchmark that investors use to hedge againstlosses or to speculate on creditworthiness, declined 1.1 basispoints to a mid-price of 102.4 basis points, the lowest since May8, according to prices compiled by Bloomberg.

In London, the Markit iTraxx Europe Index of 125 companies withinvestment-grade ratings declined 0.9 to 148.9. In the Asia-Pacificregion, the Markit iTraxx Asia index of 40 investment-gradeborrowers outside Japan increased 2 basis points to 150.5 as of13:06 p.m. in Hong Kong, Royal Bank of Scotland Group Plc pricesshow.

The indexes typically fall as investor confidence improves andrise as it deteriorates. Credit swaps pay the buyer face value if aborrower fails to meet its obligations, less the value of thedefaulted debt. A basis point equals $1,000 annually on a contractprotecting $10 million.

Bonds of Caracas-based Petroleos de Venezuela SA, or PDVSA, werethe most actively traded dollar-denominated corporate securities bydealers last week, with 552 trades of $1 million or more, Tracedata show.

A $2.8 billion two-part offering from Richmond, Virginia- basedAltria Group Inc. led $69.5 billion of corporate bond salesworldwide, an 18 percent increase from $58.9 billion in the weekended Aug. 3, Bloomberg data show. Weekly sales have averaged $73.1billion this year.

Altria's $900 million of 4.25 percent, 30-year bonds fell 1.3cents from the issue price on Aug. 6 to 97.4 cents on the dollar toyield 4.4 percent, Trace data show.

Sales of longer-dated investment-grade bonds this year throughlast week rose 63 percent from the same period last year, eclipsingissuance of $82.6 billion in all of 2011 and $77.9 billion in 2010,Bloomberg data show. Offerings of all maturities have climbed 11percent this year to $660 billion.

U.S. investment-grade debt due in 15 years or later havereturned 10.5 percent this year, more than triple the gain of 3percent by notes due in one to three years, Bank of America MerrillLynch index data show. The shorter-term obligations have returned14 percent in the past three years, compared with 51 percent forthe longer-term debt.

Morgan Stanley, the lender downgraded two levels to Baa1 byMoody's in June, raised $2 billion with 6.375 percent notes on July19, its first fixed-rate 30-year debt since March 2002, Bloombergdata show. On July 24, FedEx, the Memphis, Tennessee- basedoperator of the biggest cargo airline, issued $500 million of 3.875percent bonds due in three decades, its first 30-year offeringsince 1989.

Other companies selling bonds with a minimum 30-year maturity in2012 include pipeline operator Enterprise Products Partners LP with$1.85 billion. Bank of America Corp. and Target Corp. each issued$1.5 billion of the debt, and PepsiCo Inc. sold $1.35 billion,Bloomberg data show.

A May 24 United Technologies Corp. offering of $3.5 billion of4.5 percent bonds due in 2042 “signaled how much appetite there isat the long end of the curve,” Andrew Karp, head ofinvestment-grade syndicate for the Americas at Bank of AmericaMerrill Lynch, said in a telephone interview from New York. Thelender helped manage the sale.

'Fantastic Time'

The 30-year maturity from the Hartford, Connecticut-based makerof Pratt & Whitney jet engines and Sikorsky helicoptersaccounted for the largest portion of its $9.8 billion transactionto help finance its acquisition of Goodrich Corp. The bonds haveclimbed 14.5 cents from the issue price to 113.2 cents on thedollar to yield 3.8 percent as of Aug. 10, Trace data show.

Yields on U.S. corporate debt with maturities of 15 years orlonger fell to a record low 4.42 percent on July 25, Bank ofAmerica Merrill Lynch index data show. That compared with 1.61percent that day for debt due in one to three years, which yieldedmore than 5 percent in July 2009.

“It's a fantastic time to put on 30-year debt,” said BarbaraMariniello, a managing director in debt capital markets in New Yorkat Barclays Plc, which helped Kraft Foods Inc. sell $2 billion of 5percent, 30-year bonds in May. Lower yields are giving companies“the opportunity to push issuance out the curve as long aspossible,” she said.

Corporate borrowing costs are falling to record lows with theU.S. central bank holding interest rates near zero since December2008 to help spur economic expansion during the longest recessionsince the Great Depression.

While the economy exited the recession in June 2009, therecovery has faltered. U.S. forecasters have cut their outlook,with the Federal Reserve Bank of Philadelphia estimating grossdomestic product will increase at an annual rate of 1.6 percentthis quarter, down from the previous estimate of 2.5 percent. Theforecasters see GDP expansion of 2.2 percent in 2012, down from 2.3percent.

Fed Chairman Ben S. Bernanke said in a speech to teachers lastweek that “our economy is still in a fragile recovery” and thecentral bank is working to restore normal levels of employment andgrowth. The Federal Open Market Committee said Aug. 1 that it wouldprovide “additional accommodation” as needed to promote an improvedjob market.

Price-Sensitive

Prices of longer-maturity bonds are more sensitive to changes incurrent market yields than shorter-dated debt. An equal rise inborrowing costs cuts more value from longer-dated notes that pay alarger number of coupons.

The influx of long-term debt combined with record-low yieldshelped pushed average modified duration on U.S. investment-gradeobligations to 6.82 years on Aug. 2, the highest level sinceDecember 1993, Bank of America Merrill Lynch index data show. Themeasure is up from 6.3 a year ago.

“Given the fact that you're starting off with this very lowyield, the reduction in price would be quite substantial” ifinterest rates increased, John Lonski, chief economist at Moody'sCapital Markets Group in New York, said in a telephone interview.“There's no way in the world that you're being compensated for thatparticular risk.”

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.