Analysts Expect Corporate Debt Sales to Rise

Oncor Electric Delivery Co. on Tuesday doubled its bond sale to $1 billion from $500 million, a sign that strong investor demand may lead to a flurry of new corporate debt sales starting next week.

Investment-grade corporate bond offerings last week topped $16 billion, the most since January, as a rebounding stock market gave investors more confidence to take a chance on company debt.

While there have been just three new sales this week, totaling $2.3 billion, analysts expect bond issuance to pick up next week when many investors and corporate treasurers return from summer vacation.

“With stability in the equity market and pent-up demand from investors, we expect a ... frenzy post-Labor Day,” said Peter Petas, analyst at CreditSights Inc.

“Conditions have improved to the point where companies that might have had to sit on the sidelines in July have been able to tap the market,” said Steve Nelson, who invests about $2.5 billion for Advantus Capital Management in St. Paul, Minn.

Oncor, the gas-and power-delivery unit of TXU Corp., the fifth-largest U.S. utility owner, sold $800 million of 20-year bonds with a coupon, or annual interest rate, of 7%, and $200 million of five-year notes with a 5% coupon.

By contrast, U.S. Treasury bonds maturing in 20 years yield about 5.15%, and Treasuries maturing in five years yield 3.35%.

The corporate bond market nearly shut down early in August, as fearful investors were reluctant to take on even modest credit risk. Since then yields have declined as more buyers have stepped up. Assuming the economy continues to recover, many analysts argue that corporate yields are attractive, especially compared with Treasuries.

Yields on the highest-risk bonds--corporate junk issues--also have declined recently. The KDP Investment Advisors yield on an index of 100 junk issues was at 11.53% on Tuesday, down from 11.62% on Monday and the lowest since July 17.

A government report Tuesday showed orders for durable goods surged 8.7% in July. That helped buoy optimism about the corporate sector’s recovery.

The durable-goods number “throws cold water on the notion that we’re headed for a double-dip recession,” said Michael Ryan, chief fixed-income strategist at UBS PaineWebber. “That’s constructive for corporate credit.”