US IG WRAP-Apple, Shell pay up to raise US$18bn

By Danielle Robinson

NEW YORK, May 6 (IFR) - Apple (NasdaqGS: AAPL - news) and Shell (LSE: RDSB.L - news) raised a combined US$18bn in new bonds Wednesday but had to pay up to do it, as rates lurched to their highest levels of the year and sharply raised borrowing costs.

The deals helped push the high-grade bond market to its third-largest day of 2015, but only after offering wide new issue concessions on longer-dated debt to compensate for 30-year Treasury bonds hitting their highest levels since December.

"Investors are watching total returns (on corporate bonds) getting crushed by the rise in Treasury yields," one debt capital markets banker told IFR.

Apple (Swiss: AAPL.SW - news) (Aa1/AA+) had to offer an extra 10bp-15bp of spread for investors, the most it has had to pay in new issue concession since it first began selling bonds two years ago.

Shell (Aa1/AA) also paid as much as 16bp in concession for the 20 and 30-year tranches of its US$10bn five-part trade, even though it amassed more than US$21bn in orders and had been out of the market for two years.

By contrast, AT&T (Swiss: T.SW - news) - lower rated at Baa1/BBB+/A+ - paid a mere 3.4bp average new issue concession on a far larger US$17.5bn trade just a fortnight ago.

Bankers said the shift was due to a combination of huge bond supply and fears that long-dated Treasury yields have reached a tipping point, leaving their record lows behind them.

The 30-year Treasury yield pierced 3.00% for the first time since December, and at 2.24% the 10-year yield was at its highest level for the year.

The rise in rates, which have crept up about 40bp in the past month on the 10-year, has caused total returns for high grade 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 the 10 and 30-year curves will steepen until a "new normal" is established.

Bill O'Donnell, rates strategist at Royal Bank of Scotland (LSE: RBS.L - news) , said indicators suggested that "many former entrenched (bull) trends are now over and the new long term (bear) trends have begun."

Despite the rates jitters, though, six other borrowers joined Apple and Shell, looking to raise more than US$21.5bn. It was the third-busiest day of the year; Tuesday's US$17.7bn was the year's fifth busiest.

"We have massive issuance because borrowers know that the early borrowers to market do better in a big month for deals," said the DCM (KSE: 024090.KS - news) banker. (Reporting by Danielle Robinson; Editing by Natalie Harrison)