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26-06-2012 23:27:00

UPDATE: $8.25 Billion in Corporate Bonds Flow Into Market

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--Eight companies sell $8.25 billion of high-grade bonds

--Three borrowers upsize deals, implying strong demand

--Deals getting done ahead of possible volatility and slowdown

(Updates throughout with final deal sizes and prices.)

By Patrick McGee

More than $8 billion of high-grade corporate bonds were sold Tuesday as issuers elected to sell bonds early in the week and ahead of what could be more a volatile period owing to the two-day European Union summit beginning Thursday.

Despite a weakened tone in early trading, eight companies including Comcast Corp. (CMCSA, CMCSK) and Deere & Co. (DE) took a chance at selling bonds in a market featuring near record-low yields. The bet paid off well, as conditions improved throughout the day and allowed three of the companies to increase the size of their offerings.

American International Group Inc. (AIG) even tripled the size of its deal--an add-on to an earlier, 4.875% note due in June 2022--to $750 million, indicating strong attraction to low yields and heavy demand from investors.

A broad measure of risk sentiment, Markit's CDX North America Investment Grade Index, improved 0.3% in late-afternoon trading. Earlier the index had deteriorated 0.8%, following a 3.4% weakening Monday.

Jim Probert, managing director and head of investment grade capital markets at Bank of America Merrill Lynch, said investors are getting more comfortable with volatility, enabling issuers to bring debt to the market even on days when equity markets are down sharply.

"It has evolved from perhaps three or six months ago," Probert said. "We wouldn't have recommended moving ahead on days that were down...and now we are confident moving ahead."

One reason both sides of the transaction can be confident is that issuers are receiving some of the lowest borrowing costs on record, and investors are seeing good performance in the secondary market.

The Barclays investment-grade index was within 0.02 percentage points of its all-time low at 3.27% Monday, but it also returned 4.85% to date this year.

"It's close to a perfect world scenario," Probert said. "It's rare that two things line up...and both sides are taking advantage of that."

Comcast led the market by deal size, selling $2.25 billion in 10-year and 30-year bonds. They yielded 3.135% and 4.655%, or spreads to Treasurys of 1.50 and 1.95 percentage points.

The deal marks its first offering in more than two years, according to Standard & Poor's LCD.

Deere, which sold $1.25 billion of 30-year bonds at one of the lowest yields on record earlier this month, priced $1.6 billion in a three-part deal featuring 22-month floating-rate notes and fixed-maturities due in three and 10.5 years. The fixed-rate notes were priced to yield 0.959% and 2.83%, respectively, or 0.55 and 1.20 percentage points more than Treasurys.

Those jumbo deals should help weekly issuance match estimates of around $15 billion. Last week, nearly $20 billion of high-grade bonds were priced according to Dealogic, versus estimates of $10 billion to $15 billion.

David Trahan, head of investment-grade syndicate at Citigroup, said Monday the stars could align for a continued flood of deals issuance this week, as market participants anticipate a holiday-induced slowdown in trading next week.

"This is certainly a week that the market was expecting to be active, in part because of the odd holiday next week with July 4th falling on Wednesday," he said. "If markets stabilize, we could see a plethora of companies coming to the market."

Two other $1 billion deals to price Tuesday were from VEB Finance and Metropolitan Life Global Funding I, a unit of MetLife Inc. (MET).

Luxury goods maker LVMH Moet Hennessy Louis Vuitton SA (MC.FR, LVMUY), a rare issuer, increased the size of its five-year deal to $850 million from $500 million. The bonds were priced to yield 1.685%, or 0.95 percentage points over Treasurys.

The financing unit of global information services group Experian Plc (EXPN.LN, EXPGY) also upsized its five-year deal to $600 million from $500 million. It priced the bonds at 2.472%, or 1.75 percentage points over Treasurys.

Write to Patrick McGee at patrick.mcgee@dowjones.com

(END) Dow Jones Newswires

June 26, 2012 17:27 ET (21:27 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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