Verizon bond buyers gain as prices jump

Verizon bonds jumped in their first full day of trading in secondary markets, rewarding investors who bought $49bn worth of the securities at discount prices in the largest corporate debt sale in history.

Investors who did not take part in the company's blockbuster offer on Wednesday scrambled on secondary markets to buy the debt, pushing the price of the securities sharply higher. The gains may have generated up to $2bn in profit on the bonds in 24 hours, analysts estimated.

Verizon sold a combination of fixed and floating-rate debt spread across six different maturities that ranged from three to 30 years.

On Thursday, the telecoms group's $15bn of debt maturing in 30 years, the largest tranche in the offering, traded as high as 106.01 cents, up from an issue price of 99.88 cents, according to data compiled by Bloomberg and Standard & Poor's LCD.

Verizon's $11bn in 10-year notes also rose, and traded as high as 102.74 cents, after trading at 102.33 cents at its opening.

Trading volumes also soared. Verizon's new 10 and 30-year debt issues alone accounted for almost 17 per cent of all volume in investment-grade corporate bonds on Wednesday, according to MarketAxess data.

"Technically they sold $49bn of bonds at $49bn that then traded to be worth $51bn," said Peter Tchir, founder of TF Market Advisors. "That is a lot of profit to those who got good allocations."

Verizon's sale dwarfed Apple's $17bn offer in April, then the largest on record. Apple bonds have not performed well in secondary markets. The price of many other large corporate debt issues have fallen in the last couple of months, weighed down by the prospects of tapering by the Federal Reserve.

As a result, funds investing in fixed-income securities have experienced large redemptions, leaving investors facing their first negative year of performance since 2008.

"It has been a choppy couple of months. Long only funds have struggled to show good returns," said Mr Tchir. Gains in Verizon bonds "should help their performance. Hedge funds will benefit from this as well."

Over 1,000 accounts lined up for Verizon's sale, including hundreds of hedge funds, which jumped at the opportunity to buy the bonds at attractive prices.

The telecoms company, which was raising capital to finance the $130bn acquisition of a 45 per cent stake in Verizon Wireless, stoked demand for the deal by selling the debt at generous levels compared with that of other similarly rated bonds.

The group sold its 10-year bond at a yield of 5.19 per cent, or about 57 basis points higher than its existing debt for that maturity, a substantial concession for bond investors.

"There was a fair amount of concession built into this offering, which helped drive demand, yet even with that incentive the deal's performance was nothing short of impressive given the size of the offering," said Adrian Miller, director of fixed-income strategy at GMP Securities.

"The corporate bond market, which is still trying to catch its breath from the uber-bond offering, will likely be fully engaged in trading this behemoth."

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