Corporate Bond Market Springs Back to Life After Sandy

   By Patrick McGee 
 

High-grade companies are making up for lost time in the U.S. debt markets.

Bankers were expecting upward of $30 billion in high-grade bond deals this week, but it has been all quiet amid the fallout from Hurricane Sandy. That was changing Thursday, with at least nine borrowers tapping the market.

Heavy hitters include defense contractor General Dynamics Corp. (GD), the financing units of BP PLC (BP) and Caterpillar Inc. (CAT), and the Bank of Montreal (BMO).

The size of the deals will be determined in the coming hours, but the total was expected to be $7.6 billion at least.

The comeback is "obviously a sign of strength for the market," said John D. Ryan, portfolio manager at DWS Investments in New York.

Early indications suggest the balance of power remains with issuers rather than investors. The large companies are taking advantage of recent strong demand, as shown by the heavy cash flows into credit markets, Mr. Ryan said. He said the deals were less attractive for investors than for the borrowers.

"Looks like fair-value at best," he added. "There's really nothing that enticing so far."

High-grade corporate bonds have been one of the biggest beneficiaries of the Federal Reserve's latest efforts to stimulate the economy by buying bonds--its third round of quantitative easing, known as QE3.

While Treasurys and U.S. mortgage-backed securities delivered negative total returns last month of -0.17% and -0.18%, respectively, high-grade corporates gained 1.29%. Financial bonds with long maturities, a subset of corporates, led the way with a 2.84% return. "Junk"-rated corporates returned 0.88%, according to Barclays indexes.

The outperformance of corporate bonds "highlights that investors taking profits on the mortgage rally are staying with higher-rated asset classes rather than chasing yield," wrote J.P. Morgan credit strategist Eric Beinstein on Thursday.

Markit's CDX North America Investment-Grade Index, a proxy for investor confidence, suggests investors continued to look favorably at the asset class Thursday. It improved 2% in late-morning trading.

The General Dynamics deal includes five, 10- and 30-year bonds.

BP Capital Markets, a financing arm of the oil company, is selling three-, five-, and 10-year bonds.

Caterpillar Finance, an arm of the machinery manufacturer, plans to issue debt in three- and five-year maturities.

General Dynamics, Caterpillar and BP are all rated A2 by Moody's Investors Service and an equivalent A by Standard & Poor's Ratings Services and Fitch Ratings.

The Bank of Montreal, rated Aa2 by Moody's, A-plus by Standard & Poor's, and AA-minus by Fitch, is issuing three- and 10-year bonds.

Other deals include 10-year offerings from Stanley Black & Decker Inc. (SWK), PNC Financial Services Group (PNC), and AutoZone Inc. (AZO). There is also a 30-year sale from El Paso Pipeline Partners Operating Co. (EPB) and a three-year deal from Capital One Financial Corp (COF).

Write to Patrick McGee at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires