Bank of America, Santander Boost Yield Premiums as Investors Favor Lenders
Bank of America Corp. and Spain’s Banco Santander SA are having to pay up to sell bonds even amid renewed confidence financial companies have sufficient capital to survive an economic slump.
Bank of America, the biggest U.S. lender, is selling 2 billion euros ($2.6 billion) of seven-year notes at a yield of 212.5 basis points over the benchmark mid-swap rate, 22.5 basis points more than it paid on its last benchmark euro deal in March, according to data compiled by Bloomberg. Spain’s No. 1 bank is also paying extra for its first public issue of fixed- rate senior, unsecured bonds since February.
The new deals follow fundraisings by Credit Suisse Group AG and Spain’s Banco Bilbao Vizcaya Argentaria SA as confidence is lifted by the results of last week’s bank stress tests. The extra yield investors demand to own European financial debt over government notes dropped 13 basis points to 220 since results were released July 23, the lowest since May 12, according to Bank of America Merrill Lynch’s EMU Financial Corporate Index. The spread fell to 169 basis points on April 16.
“The market is still semi-dysfunctional and the fundamental problems haven’t gone away,” said John Anderson, who helps manage about 23 billion pounds ($36 billion) of assets as head of credit at Gartmore Investments in London. “This is the first few days of a rally and it could end as quickly as it started.”
Santander Issue
Santander is selling 1.5 billion euros of four-year bonds priced to yield 160 basis points more than swaps, a person with knowledge of the deal said. That compares with the 105 basis- point spread on the lender’s 1 billion euros ($1.3 billion) of five-year notes in February. The outstanding 2015 debt now trades at 148 basis points over swaps, composite prices on Bloomberg show.
Bank of America paid a spread of 190 basis points when it raised 1.5 billion euros of 4.75 percent notes due 2017 on March 11, according to data compiled by Bloomberg.
The cost of insuring bank debt from default fell today, with the Markit iTraxx Financial Index of credit-default swaps linked to 25 banks and insurers dropping 2.5 basis points to 113, according to JPMorgan Chase & Co. The gauge is down 49 basis points in July and is heading for a record monthly decline.
“Sentiment is much more positive,” said Stuart Thomson, who helps manage the equivalent of about $1 billion at Ignis Management in Glasgow. “There’s demand today for financials that wasn’t there a few weeks ago.”
BBVA issued 1.25 billion euros of five-year notes yesterday in the first public sale of senior unsecured securities by a Spanish bank since April. Credit Suisse, Switzerland’s largest bank priced $1.5 billion of so-called Tier 1 bonds today.
OAO Gazprombank, the lending arm of Russia’s natural gas export monopoly, is selling $500 million of bonds due December 2014 that may be priced to yield 6.25 percent to 6.375 percent, two people with knowledge of the sale said.
To contact the reporters on this story: Kate Haywood in London at khaywood@bloomberg.net; Caroline Hyde at chyde3@bloomberg.net
Rate These Stories
Rate this Page