By Patrick McGee J.P. Morgan Chase & Co. (JPM) sold $2.5 billion of five-year bonds in the U.S. credit markets Monday. The deal is the second-largest of four debt offerings from J.P. Morgan this year, according to Dealogic. In January, it sold $3 billion of 10-year bonds. The 2% coupon notes were priced to yield 2.038%, or 1.35 percentage points more than the five-year Treasury rate. Earlier pricing guidance was slightly higher at 1.375 points, but the offered yield fell due to strong demand, a person familiar with the matter said. When the bank last sold fixed-rate, five-year paper in July 2011, it paid a coupon of 3.15%, Dealogic shows. Thanks to falling Treasury rates and heavy demand for corporate bonds, Monday's offering allowed the bank to pay more than a percentage point less in interest than in did on the prior deal. The 3.15% bonds from July 2011 yielded just 1.60% on Friday, as their price has climbed to $105.820 per $100 of face value. Prices move inversely to yields. This is the first deal from J.P. Morgan since its rating was cut by two notches in late June after Moody's Investors Service conducted a review of global banks. It is also the first offering since the bank disclosed in May that it had lost billions of dollars from derivatives trading in its London unit. Those losses were most recently estimated at $5.8 billion. The bonds are expected to carry ratings of A2 from Moody's, A from Standard & Poor's, and A-plus from Fitch Ratings. Bank-bond investors have been consistently rewarded in 2012. Financial bonds tend to offer more spread, or extra yield over Treasurys, than other bonds, so as interest rates have declined, bank bonds have had more room to run, thus producing outsize returns. The Barclays index of senior bank bonds currently shows an average yield of 3.06%, but its total return--which includes coupon payments and capital appreciation--is 9.71% this year, or 8.56 percentage points more than Treasurys. The deal brings Monday's tally of new issuance to at least $5.8 billion, marking a fast start after more than $25 billion was sold last week. According to Dealogic, last week was the second-busiest week in August--typically a slow month--since records began in 1995. Write to Patrick McGee at patrick.mcgee@dowjones.com
