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Corporate Bond Yields - How Low Can They Go?



August 22, 2011 – Comments (0)

Last week, Disney (DIS) issued a series of debt that set new records for 5, 10 and 30 year paper in the corporate markets.  The House of Mouse wasn't the only company tapping credit markets and it's (sometimes) interesting to see who's borrowing and what they're doing with the money.  A few other factoids:

 - Some of the new 10 year issues came in at yields below the latest CPI figures, i.e. bond investors are accepting a near certain loss in purchasing power in exchange for the perceived safety of bonds.  That perception of safety may or may not be a good one.
- Lower rates mean VF Corp's Timberland acquisition will cost a little less than it would have a few eeks ago.
 - DIS is solidly investment grade, but isn't AAA, so there's room for new record lows.
 - I didn't cover it in the article, but some of these companies are issuing bonds with yields below the dividend rate.  That means that, in theory, they could improve cash flow by issuing bonds and using the money to buy back stock.

I suspect most Fools don't hold individual bonds, but it's a good idea to check up on what companies are doing with credit as part of the stock research process.

As always, questions and comments welcome either here or at the article.

Fool on!


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