Procter & Gamble Co.’s recent $1.35 billion debt issuance is sending a clear signal that investors are rushing into corporate debt markets before potential Federal Reserve interest rate cuts. The demand for P&G’s new 10-year bond reveals an unprecedented trend, with investors seeking merely 37 basis points in additional yield over comparable US Treasuries. This marks the smallest risk premium on record for a sale of corporate bonds maturing in a decade in US investment-grade markets, based on Bloomberg data dating back to 2000.
Scott Kimball, Chief Investment Officer at Loop Capital Asset Management, notes, “It’s almost as if everyone woke up Jan. 1 and realized yields were at a nearly two-decade high. From the capital-structure perspective, with equity valuations pretty high, it’s hard to ignore.”
Last year, a broad measure of investment-grade corporate bond yields reached nearly 6.5%, a level not seen in over 14 years, according to Bloomberg data. P&G’s two-part offering coincides with a bustling period in primary markets, witnessing a 32% increase in new sales volumes in 2024 compared to the same period the previous year.
Investors are eagerly participating in these offerings amid speculation that the Federal Reserve may adopt monetary easing later in the year. While the timing remains uncertain, investors are positioning themselves in fresh high-grade notes due to their typically high duration, making them an attractive option if interest rates decline.
The average extra yield demanded by investors to hold corporate notes over Treasuries has fallen to 96 basis points this week, just shy of the lowest level in two years. The spread on the 10-year segment of P&G’s deal narrowed from around 55 basis points during initial discussions, according to an anonymous source familiar with the matter.
This risk premium on the bond is one basis point narrower than a 10-year Johnson & Johnson note maturing in 2013, underscoring the heightened demand for P&G’s offering in the current market environment.
