If there was one corner of the debt market immune from present credit woes,
one would imagine it to be the market in unsecured, "natural" AAA-rated
securities. And indeed Johnson & Johnson, one of those precious natural
AAA credits, saw
enormous demand for its $2.6 billion bond offering yesterday.
But it paid a steep price, all the same.
three tranches of debt. The five-year bonds came at 62bp over Treasuries;
the 10-years at 77bp over; and the 30-years at an eye-popping 96bp over.
In comparison, the last time that J&J came to market, its 10-year bonds
were issued at 38bp over, while the 30-year bonds came at 50bp over Treasuries.
And looking at yesterday’s closing levels for the Embi emerging-market bond
index, we can see that Egypt is trading at 65bp over Treasuries, while Poland
is trading at 70bp over. Poland has a single-A rating, while Egypt is not even
It seems that triple-A rating is good for generating demand; it’s just not
so good at bringing down spreads.
Incidentally, I have a lot of sympathy for J&J in its suit
against the American Red Cross. The two organizations have happily coexisted
with the same trademark for many years: J&J, which had the trademark first,
uses it for commercial purposes, while the Red Cross uses it for charitable
It’s not like the Red Cross is ignorant of trademark issues – quite
the opposite. And J&J even looked the other way as the Red Cross slapped
its name and logo on all manner of commercial products, including this
one. But there comes a point when J&J simply can’t allow its direct
competitors to use its own trademark. And that point arrived when the Red Cross
started licensing out J&J’s own trademark to J&J’s own competitors.
It seems that the Red Cross, in typical high-handed fashion, simply refused
to talk to J&J, or address the company’s concerns, despite the fact that
J&J is a major donor. When you behave like that, you run the risk of a lawsuit,
and that’s what they ended up being slapped with. The Red Cross is trying to
J&J into stepping down; I hope the company has the cojones not to.