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Portfolio > Mutual Funds > Bond Funds

Money losing long-bond boom continues with MetLife selling debt

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(Bloomberg) — To see just how starved are debt investors are for yield look no further than their love of money-losing corporate bonds that mature in 30 years or more.

MetLife Inc., the largest U.S. life insurer, sold bonds on Monday that don’t have to be repaid till 2046. That’s helped boost the sale of debt that have maturities of more than 30 years to over $74 billion this year, about double the amount issued in all of 2014, according to data compiled by Bloomberg.

The issuance comes as the longest-dated investment-grade securities are posting losses this year of nearly 6 percent, compared to a 0.376 percent decline in investment-grade debt of all maturities.

“There is still a lot of investor cash that needs to be put to work, and it’s in issuers’ best interest to lock in as much long-dated cheap money as possible, as long as they can,” said Jack Flaherty, a money manager in New York at GAM Holdings AG, which oversees $127 billion.

Corporate bonds maturing in 15 years or more are yielding 5.12 percent, near the most since February 2014, according to Bank of America Merrill Lynch Indexes making the long debt more attractive, especially to insurers and pension funds looking to match liabilities, according to Flaherty.

The window for corporate treasurers to issue debt at record-low borrowing costs is shrinking rapidly after a strong payroll report on Friday bolstered chances of the U.S. central bank raising interest rate as soon as next month. Microsoft Corp. issued its second 40-year bond Oct. 29 as part of a record $13 billion offering for the software maker.

MetLife Bonds

MetLife sold $750 million of bonds that mature in 30.5 years at a yield of 1.5 percentage points more than similar- maturity Treasuries, Bloomberg data show. That’s down from an earlier marketed yield spread of 1.7 percentage points, according to a person familiar with the deal who asked not to be identified because the information isn’t public.

Jillian Palash, a spokeswoman for the New York-based MetLife, declined to comment beyond what was in the company’s filing.  

The boom in long-term debt comes as global central-bank stimulus pushes yields on more than $2.1 trillion of the world’s sovereign debt below zero, prompting investors to chase the returns offered by riskier corporate bonds. Maturities for bonds issued in 2015 average 17.1 years, on pace for the highest on record, according to the Securities Industry & Financial Markets Association. That compares with an average of 10.7 years, according to SIFMA data going back to 1996.

“There is just a ton of supply, and more coming as companies try to get in before the Fed raises rates,” said Jennifer Vail, head of fixed-income research at Minneapolis based U.S. Bank Wealth Management, which oversees $112 billion. “Even when the Fed raises rates borrowing costs will still be pretty low. While borrowing costs are low expect companies to continue to be there.”


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