Rio Tinto Sells Bonds as European Debt Risk Drops for Fourth Day
Rio Tinto Plc (RIO) joined Deutsche Post AG and retailer Metro AG in selling bonds while corporate credit risk fell for a fourth day as U.S. leaders seek to forge a budget deal and euro-area finance ministers meet in Brussels.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings fell two basis points to 483 at 12 p.m. in London, the lowest since Oct. 19. Corporate bonds yield 2.16 percent on average, near last week’s record low and down from 4.4 percent at the start of the year, Bank of America Merrill Lynch’s EMU Corporate Index shows.
U.S. leaders are preparing for more budget talks after a Republican plan to tackle the so-called fiscal cliff was rejected, while finance chiefs in Europe were confident Greece’s bond buyback plan will help pave the way for further aid payouts. Bond sales remain buoyant after November’s record as cheap borrowing rates continued to draw corporate borrowers.
“The situation in Greece is improving so spreads continue to grind tighter,” said Juan Esteban Valencia, a strategist at Societe Generale SA in Paris. “I don’t see what can derail credit substantially at this point and issuance should remain strong in the two weeks ahead of the year end break.”
Rio Tinto is selling benchmark bonds in euros in two parts, with a portion due May 2020 yielding 80 basis points more than swaps, and piece due December 2024 with a spread of 110 basis points, according to people familiar with the deal. The London- based mining company is also issuing bonds in pounds due 2029 yielding 165 basis points more than U.K. gilts.
Deutsche Post AG (DPW) is selling 2 billion euros ($2.6 billion) of debt, including 1 billion euros of convertible bonds and two portions of conventional securities, Europe’s largest postal service said today in a statement. The Bonn-based company’s 2.95 percent bonds due 2022 fell 0.7 percent to 104.6 cents on the euro, the lowest since Oct. 6 and the biggest faller in Bank of America Merrill Lynch’s EMU Corporates Non-Financial index.
Metro, Germany’s biggest retailer, is selling 500 million euros of bonds due May 2018 that will be priced to yield 140 basis points more than the swap rate, according to people familiar with the deal. The company is selling the bonds through its Metro Finance BV unit.
Sales of company bonds in euros rose to 22.4 billion euros in November, according to data compiled by Bloomberg tracking issuance of non-financial borrowers. Companies have raised 168 billion euros this year, the most since the record 221 billion euros for all of 2009.
The Markit iTraxx Financial Index linked to senior debt of 25 European banks and insurers dropped two basis points to 153, approaching the lowest in 16 months. The subordinated index fell six basis points to 268.
The Markit iTraxx Europe Index of contracts on 125 companies with investment-grade ratings was little changed at 119.5 basis points.
A basis point on swaps contract a protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. The derivatives 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.
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