McDonald's sells cheapest 10-year U.S. debt since '95
McDonald's Corp., the world's largest restaurant chain, sold the cheapest 10-year debt in the U.S. bond market in at least 15 years yesterday, as borrowers tap investor demand for new issues and absolute yields on investment-grade debt fell to the lowest since March 2004.
The company placed $450 million of 3.5 percent, 10-year notes and $300 million of 4.875 percent, 30-year bonds, according to data compiled by Bloomberg. The 10-year note has the lowest coupon of any issuer since 1995, including AAA rated Johnson & Johnson, and the 30-year bond ties for the least with Wal-Mart Stores Inc., Bank of America Merrill Lynch data show.
McDonald's joins Kimberly-Clark Corp., Wal-Mart and Duke Energy Corp. in paying the lowest interest on 10-year debt since 1995 through issues in the past four weeks, the bank's data show. Companies are selling debt "not necessarily earmarked for a specific need," said Dan Mead, a managing director of U.S. investment-grade debt syndicate at Bank of America Merrill Lynch.
Issuers are "taking advantage of record-low coupons right now," Mead, who helped manage Oak Brook-based McDonald's sale, said in a telephone interview. "It's a pretty interesting time right now because you're looking at record-low Treasury rates coupled with credit spreads near all-time lows, so it's a good combination for issuers."
The average yield on investment-grade corporate debt fell to 4.1 percent yesterday, the lowest since March 24, 2004, according to Bank of America Merrill Lynch's U.S. Corporate Master index. Treasury 10-year yields have been within 5 basis points of 3 percent for the past week. A basis point is 0.01 percentage point.
The fifth-lowest rate on 10-year bonds since 1995 was paid in May 2003 by Johnson & Johnson, Bank of America Merrill Lynch data show, one of four nonfinancial U.S. companies rated AAA by Standard & Poor's. That's the same grade it assigns to U.S. government debt. The world's largest maker of health products sold 3.8 percent notes at the time, Bloomberg data show.
Mead said he expects increased issuance from industrials, as companies take advantage of rates today "when a month ago, they probably weren't planning on doing a bond deal," he said.
Companies have issued $84.7 billion of debt this month, making it the busiest July since at least 1998, Bloomberg data show.
Current yields may not satisfy all investors, said Dan Sheppard, a New York-based director in fixed-income at Deutsche Bank AG's Private Wealth Management unit, where he helps oversee $12 billion.
"The 10-year part of the curve right now, with spreads as tight as they are on some of the new investment-grade names, I'm not too sure you're missing that much if you don't get involved," he said.
McDonald's 3.5 percent debt due in 2020 traded at 99.522 cents on the dollar at 1:55 p.m. to yield 3.558 percent, or 54.7 basis points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. It sold yesterday at a yield of 3.548 percent, or a 55 basis-point spread, Bloomberg data show.
"We're taking advantage of favorable conditions and extremely favorable rates," Lizzie Roscoe, a McDonald's spokeswoman, said of yesterday's offering in an e-mail.