Banco Bilbao Vizcaya Argentaria SA (BBVA) led a rise in the cost of insuring against default on Spanish banks after the nation’s credit rating was cut for the second time this year by Standard & Poor’s.
Credit-default swaps insuring Spain’s second-biggest bank climbed 10 basis points to 429 at 11:40 a.m. in London while swaps on Banco Santander SA (SAN), the largest lender, rose nine to 412, according to data compiled by Bloomberg. Contracts on Spain added eight basis points to 480. An increase signals deteriorating perceptions of credit quality.
The country will have to provide further fiscal support to banks as the economy contracts, S&P said. Spanish Economy Minister Luis de Guindos said European officials haven’t asked the country to seek a bailout and its banking sector can cope without another round of three-year loans from the European Central Bank.
“Spanish banks’ close ties with governments have increased with the heavy buying of government debt this year,” said Ben Bennett, head of credit strategy at London-based Legal & General Group Plc. (LGEN) “Even the strongest Spanish banks like BBVA and Santander aren’t safe”
S&P lowered Spain two levels to BBB+ from A. The nation’s 10-year bond yield increased 13 basis points to 5.94 percent. The 427 basis-point difference over German debt implies a non- investment grade, or junk, rating for the nation’s bonds, according to ING Bank NV.
Yield spreads on Santander’s 1 billion euros ($1.3 billion) of 2015 senior bonds rose 9 basis points to 309 basis points above the asset swap rate, according to Bloomberg Bond Trader Prices, approaching the highest level in more than three months.
Yield spreads investors demand to hold Iberdrola SA (IBE)’s 750 million euros of 2015 bonds jumped 80 basis points to 203 above the swap rate, the highest gap since January, according to Bloomberg Bond Trader Prices. Spain’s largest utility is among Spanish companies relying on the government to attract investors for a 22 billion-euro bond program backed by power bills to reduce the gap between the cost of energy and prices to consumers.
Italy sold 5.95 billion euros of bonds today, less than the maximum for the auction, as the country paid 60 basis points more than a month ago to sell 10-year debt. The Treasury sold the 10-year benchmark at a rate of 5.84 percent, up from 5.24 percent at the previous auction on March 29.
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose two basis points to 276.
The cost of insuring company debt was little changed ahead of U.S. data on economic growth and consumer sentiment in the first quarter. The Commerce Department will release the first estimate of first quarter gross domestic product at 8:30 a.m. in Washington.
The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings rose 2.4 basis points to 663.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 0.6 to 143.5 basis points.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 0.4 basis points to 247.5 and the subordinated index also rose 0.4 to 412.
A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
To contact the reporter on this story: Katie Linsell in London at firstname.lastname@example.org