A Record Week for Bonds
Last week was a record for nonfinancial corporate bond issuance according to a report in the WSJ. I looked in to some of the bigger issuers to see what their plans were for the money.
Google, JNJ and Kellogg's were all using the money to pay down short-term commercial paper. Using higher interest rate bonds rather than rolling over cheap commercial paper seems just bit curious unless the companies either think rates are headed up or are protecting themselves against the possibility of higher rates.
I think this an indicator that we're closer to the end of near-zero rates than the beginning. Add your opinion on rates with a comment here or at the article.
1. What are the rating agencies thinking on Google's debt? The company has $37 billion in cash and only $3 billion in debt, how did this not get rated AAA? The only possibility I can think of is maybe the rating takes a small ding since GOOG has no history of debt management. And why does a company with $37 billion in cash even have any commercial paper it needs to pay off?
2. JNJ's new 10-year notes have a 3.55% coupon, 5-years carry a 2.15% coupon. The stock currently yields about 3.5%. JNJ could improve its cash flow by selling more of these bonds and using the money to buy back stock, especially when furture dividend hikes and taxes are considered (interest is deductible, dividend payments aren't).
Disclosure: Long JNJ