By Danielle Robinson
NEW YORK, May 6 (IFR) - Apple and Shell raised a combinedUS$18bn in new bonds Wednesday but had to pay up to do it, asrates lurched to their highest levels of the year and sharplyraised borrowing costs.
The deals helped push the high-grade bond market to itsthird-largest day of 2015, but only after offering wide newissue concessions on longer-dated debt to compensate for 30-yearTreasury bonds hitting their highest levels since December.
"Investors are watching total returns (on corporate bonds)getting crushed by the rise in Treasury yields," one debtcapital markets banker told IFR.
Apple (Aa1/AA+) had to offer an extra 10bp-15bp of spreadfor investors, the most it has had to pay in new issueconcession since it first began selling bonds two years ago.
Shell (Aa1/AA) also paid as much as 16bp in concession forthe 20 and 30-year tranches of its US$10bn five-part trade, eventhough it amassed more than US$21bn in orders and had been outof the market for two years.
By contrast, AT&T - lower rated at Baa1/BBB+/A+ - paid amere 3.4bp average new issue concession on a far largerUS$17.5bn trade just a fortnight ago.
Bankers said the shift was due to a combination of huge bondsupply and fears that long-dated Treasury yields have reached atipping point, leaving their record lows behind them.
The 30-year Treasury yield pierced 3.00% for the first timesince December, and at 2.24% the 10-year yield was at itshighest level for the year.
The rise in rates, which have crept up about 40bp in thepast month on the 10-year, has caused total returns for highgrade bonds to hemorrhage 200bp.
Year-to-date those returns have shrunk to 79bp versus 2.8%on April 8, according to The Yield Book's index.
Some analysts think the long-dated Treasury curve's bull-run"flattening" is over, and that the spread difference between the10 and 30-year curves will steepen until a "new normal" isestablished.
Bill O'Donnell, rates strategist at Royal Bank of Scotland,said indicators suggested that "many former entrenched (bull)trends are now over and the new long term (bear) trends havebegun."
Despite the rates jitters, though, six other borrowersjoined Apple and Shell, looking to raise more than US$21.5bn. Itwas the third-busiest day of the year; Tuesday's US$17.7bn wasthe year's fifth busiest.
"We have massive issuance because borrowers know that theearly borrowers to market do better in a big month for deals,"said the DCM banker. (Reporting by Danielle Robinson; Editing by Natalie Harrison)
