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MarketScreener Homepage  >  Equities  >  Nyse  >  Oracle Corporation    ORCL


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Stock Investors Buy Into Corporate Bond Surge -- Update

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03/30/2020 | 03:59pm EDT

By Matt Wirz

Companies ranging from Oracle Corp. to Nike Inc. are borrowing record amounts in the investment-grade bond market to build cash before the full impact of the novel coronavirus hits the U.S. economy. Much of the new debt is being purchased by an unusual type of buyer: stock investors.

"There is a rotation from a number of nontraditional investors out of other asset classes like high yield, distressed debt and equities into investment grade," said Andrew Karp, head of investment-grade capital markets at Bank of America Corp. "Among other reasons, it's a place to hide from volatility."

Issuance of investment-grade bonds in the U.S. hit about $73 billion last week, roughly 21% higher than the previous high-water mark reached in 2013, according to data from Dealogic.

Retail-oriented giants like Nike and Home Depot Inc. were among the biggest initial borrowers -- issuing $6 billion and $5 billion, respectively -- but the pace of new deals remains high, with names like technology company Oracle and food-services provider Sysco Corp. joining the fray Monday.

Nontraditional buyers are accounting for as much as one-quarter of the orders for the new investment-grade bonds Bank of America is selling, Mr. Karp said. The bank arranged Nike's deal, among others.

Investment-grade bond prices fell sharply in March as some fund managers sold out to meet client redemptions, pushing yields up and making the debt more attractive to buyers like hedge funds that normally focus on stocks. Many investors became more willing to buy the bonds after the U.S. Federal Reserve announced its own plans to start purchasing highly rated corporate debt to bolster the market. Bond yields rise when prices fall.

"We generally look at high yield but we've played in some of these deals, " said David Norris, head of U.S. credit for London-based TwentyFour Asset Management. Disruptions in the commercial paper market have been forcing blue-chip companies to borrow at unusually high yields although pricing has started to normalize in recent days, presenting fewer options for bargain hunters, he said.

The yield of a Bloomberg Barclays index of U.S. investment-grade corporate bonds was about 3.7% on Friday, down from its recent peak of 4.58% on March 20, but still well above its level of 2.43% at the end of February, according to data from FactSet. The index declined about 8.5% in March through Friday, a relatively steep decline compared with a 15% fall in the much riskier stocks of the S&P 500.

Foreign fund managers are also stepping into U.S. corporate bonds because their hedging cost in dollars has declined even as investment-grade bond yields have jumped. Bonds issued by banks were among the biggest gainers Monday, with Wells Fargo & Co.'s bond due 2051 jumping about 4.2 cents on the dollar to 121.65, according to data from MarketAxess.

U.S. Government bond yields fell Monday morning despite gains in stocks, showing that investors remain concerned about the virus's long-term economic impact. The 10-year Treasury yield declined to 0.667% from 0.744% Friday, according to data from Tradeweb.

The U.S. dollar rose slightly, in contrast to the U.K. pound and South African rand, after both countries were hit by sovereign credit-rating downgrades. The WSJ Dollar index, which measures the U.S. currency against a basket of 16 foreign currencies was up 0.48% to 93.62 Monday, stabilizing after suffering a roughly 4% loss in the previous four trading days.

Write to Matt Wirz at matthieu.wirz@wsj.com


Stocks mentioned in the article
ChangeLast1st jan.
BYD COMPANY LIMITED 0.46% 44.15 End-of-day quote.13.64%
DJ INDUSTRIAL -0.58% 25400.64 Delayed Quote.-12.42%
NASDAQ 100 -0.27% 9416.713051 Delayed Quote.8.12%
NASDAQ COMP. -0.46% 9368.988915 Delayed Quote.4.90%
NIKE, INC. -1.41% 98.46 Delayed Quote.-1.42%
ORACLE CORPORATION 0.79% 53.62 Delayed Quote.-0.38%
S&P 500 -0.21% 3029.73 Delayed Quote.-6.02%
SYSCO CORPORATION -1.76% 55.95 Delayed Quote.-33.42%
THE HOME DEPOT, INC. -0.90% 245.14 Delayed Quote.13.27%
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Financials (USD)
Sales 2020 39 556 M - -
Net income 2020 10 256 M - -
Net Debt 2020 26 446 M - -
P/E ratio 2020 17,1x
Yield 2020 1,73%
Capitalization 169 B 169 B -
EV / Sales 2019
EV / Sales 2020 4,94x
Nbr of Employees 136 000
Free-Float 63,7%
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Last Close Price 53,62 $
Spread / Highest target 11,9%
Spread / Average Target -3,62%
Spread / Lowest Target -44,1%
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Safra Ada Catz Chief Executive Officer
Lawrence Joseph Ellison Chairman & Chief Technology Officer
Mark E. Sunday Chief Information Officer & Senior Vice President
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