The Markit iTraxx Crossover Index of credit default swaps linked to the debt of 50 mostly junk-rated European companies fell nine basis points to 515 at 1:53 p.m. in London. The gauge has tightened 54 basis points this month, according to prices compiled by Bloomberg.
Credit risk fell as the New York Stock Exchange re-opened after a two-day stoppage because of Hurricane Sandy. Better- than-expected quarterly earnings from companies including General Motors Co., the largest U.S. automaker, and Barclays Plc (BARC) also boosted confidence and encouraged borrowers to raise money.
Banco Espirito Santo’s sale is “symptomatic of the improvement in market conditions over the past few months and the increasing confidence amongst investors that it is not just a temporary improvement,” said Roger Francis, an analyst at Mizuho International Plc in London. “It’s hardly cheap money for them.”
The bank is selling three-year bonds in euros that may be priced to yield 6 percent to 6.25 percent, according to a person with knowledge of the sale, who asked not to be identified. It’s the lender’s first benchmark senior bond sale in the currency without government backing since the Lisbon-headquartered lender priced 750 million euros of bonds Jan. 21, 2010, data compiled by Bloomberg show.
Achmea Hypotheekbank NV is also selling benchmark bonds in euros in its first sale in the currency since June 2009, data compiled by Bloomberg show. The bonds are being sold with a spread of 185 basis points more than the benchmark midswap rate, according to a person with knowledge of the sale who asked not to be identified.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell one basis points to 127. Bank credit risk also dropped, with the Markit iTraxx Financial Index on the senior debt of 25 banks and insurers falling three basis points to 171.
Credit-default 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. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
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