Telefonica Sells Bonds as European Corporate Credit Risk Eases

Telefonica SA (TEF), Spain’s biggest phone company, and Italy’s Mediobanca SpA tapped bond markets amid renewed investor appetite for securities from the euro area’s most indebted countries.

Telefonica raised 1.2 billion euros ($1.6 billion) from notes due 2020, the first non-financial corporate offering from a peripheral country in two weeks, while Mediobanca sold three- year bonds, according to data compiled by Bloomberg. The cost to insure European company debt from default posted its first weekly decline in three weeks.

Credit risk eased as U.S. unemployment unexpectedly fell in September to the lowest since President Barack Obama took office, and after the European Central Bank renewed yesterday its pledge to support governments with bond purchases. The central bank’s crisis-tackling efforts outlined in September had helped spur the busiest month for bond sales since May 2009.

“We’ve had a big wave, but the door is still open to issuance from peripheral companies,” said Harold Van Acht, senior credit analyst at Kempen Capital Management NV in Amsterdam. “These companies were probably waiting until after the last ECB meeting was over, and now there’s a continuation of the confidence that was here at the start of last month.”

Telefonica’s new bonds were priced to yield 330 basis points more than the benchmark swap rate. The phone company’s existing 4.693 percent bonds due 2019 fell, pushing the yield relative to swaps up seven basis points to 297.

Miguel Angel Garzon, a spokesman for Telefonica in Madrid, declined to comment on the bond sale, which is the first from a company in the euro-region’s periphery since Brisa-Auto Estradas de Portugal SA issued debt on Sept. 21.

Slowing Sales

Mediobanca (MB), Italy’s biggest traded investment bank, sold 500 million euros of bonds that were priced to yield 320 basis points more than swaps. Stefano Tassone, a spokesman for the Milan-based lender, declined to comment on the sale, which was its first benchmark offering in euros since January.

Sales of non-financial company securities were about 3.2 billion euros this week, the slowest period since the week of Aug. 19. Companies raised 51 billion euros from bond markets in September.

Yield spreads on investment-grade corporate bonds have narrowed 40 basis points relative to swaps this year to a three- week low of 120 basis points, the index data show.

The Markit iTraxx Crossover Index of credit-default swaps linked to the debt of 50 companies with mostly high-yield credit ratings dropped 17 basis points to 530. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell three basis point to 126.

The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers fell eight basis points to 178.5 and the subordinated index declined 10.5 to 312. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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