Wednesday, October 10, 2012

Bonds Bottoming Out

With interest rates running at historic lows, it is incredibly cheap for companies to borrow money right now. But with investors still spooked by the stock market, it's also very easy to sell high-quality bonds. Put those two trends together, and you get $92 billion in investment-grade 30-year corporate bonds sold so far in 2012. That's 26 percent more than was sold in all of 2011. You have to go back to 1995 to find a full year with as much corporate paper being sold - and we're not even halfway through September.

As a result, the yields investors are getting on these bonds are quite low. The average yield on a 30-year corporate investment-grade bonds is just 2.77 percent now. That's a record; the previous low (for data going back to 1973) before this year was 3.36 percent.

It's not just long-term bonds that have been dropping. Last month, D.R. Horton, a home-building company, issued $350 million in 10-year bonds, at a yield of just 4.375 percent. That's the lowest ever for a 10-year corporate bond.

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