By Patrick McGee 
 

Smaller deals are finding a receptive audience in the corporate-bond market, despite lightly staffed trading desks.

Four companies are set to price $2 billion of new bonds Tuesday, led by a 30-year deal from Illinois Tool Works Inc. (ITW).

The offerings will push this month's issuance to more than $54 billion, compared with a $43 billion average for August in the past five years, according to data provider Dealogic.

Though borrowing costs have ratcheted up this month as benchmark Treasury rates have risen, rates are well under the previous record lows heading into this year, according to the Barclays U.S. corporate investment-grade index, which goes back to 1973. The average yield is currently 3.08%, versus a record-low 2.92% on July 31. The low heading into 2012 was 3.36%.

The average yield is also just 1.71 percentage points more than Barclays's Treasurys index, the narrowest spread to the safe-haven asset class in just more than 12 months.

Markit's CDX North America Investment-Grade Index, a proxy for buyer sentiment, improved 0.9% in midafternoon trading. The index now sits at 97.5 basis points, indicating the cost to protect against defaults is at its lowest since May 3. A basis point is one-hundredth of a percentage point.

Illinois Tool Works plans to take full advantage of the favorable conditions, borrowing cash that won't come due for three decades. The company is expected to issue $1.1 billion of bonds, offering investors 1.05 percentage points more than Treasurys. This is the company's largest deal since selling $1.5 billion in March 2009.

The bonds carry provisional ratings of A1 from Moody's Investors Service and A-plus from Standard & Poor's Ratings Services.

Among smaller deals, Fidelity National Financial Inc. (FNF) is selling $400 million of 10-year bonds at around 3.875 percentage points more than Treasurys.

PPL Electric Utilities Corp. and India's Axis Bank Ltd. (532215.BY) already completed $250 million deals.

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

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