(Bloomberg) — Procter & Gamble Co.’s $1.35 billion debt sale is flashing one of the clearest signals yet that investors are binging in corporate debt markets before the Federal Reserve can pull interest rates lower.
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Investors are demanding just 37 basis points in extra yield over comparable US Treasuries to buy the Pampers diaper maker’s new 10-year bond. That’s set to be the smallest risk premium on record for a sale of corporate bonds maturing in a decade in US investment-grade markets, according to data compiled by Bloomberg going back to 2000.
“It’s almost as if everyone woke up Jan. 1 and realized yields were at a nearly two-decade high,” said Scott Kimball, chief investment officer at Loop Capital Asset Management. “From the capital-structure perspective, with equity valuations pretty high, it’s hard to ignore.”
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A broad measure of investment-grade corporate bond yields surged late last year to nearly 6.5%, a more than 14-year high, according to data compiled by Bloomberg.
P&G’s two-part offering comes at a frenetic moment in primary markets, with new sales volumes up 32% so far in 2024 when compared to the same period a year earlier.
Much of that activity has been met with intense demand as speculation mounts the Fed will embrace monetary easing at some point this year. With the timing uncertain, though, investors are already loading up on fresh high-grade notes due to their typically high duration, which makes them an attractive bet if interest rates begin to drop.
The extra yield investors demand, on average, to hold corporate notes over Treasuries has fallen to 96 basis points this week — just off the lowest in two years.
The spread on the 10-year portion of P&G’s deal, meanwhile, narrowed from roughly 55 basis points during early discussions, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it.
The bond’s risk premium is one basis point narrower than a 10-year Johnson & Johnson note that matured in 2013.
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–With assistance from Caleb Mutua.
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