The cost of insuring against default on European debt pared a weekly decline as Germany’s central bank cut its growth forecast, an earthquake hit Japan and stuttering U.S. budget talks overshadowed jobs growth.
The Markit iTraxx Financial Index of credit-default swaps on the senior debt of banks and insurers rose three basis points to 152 at 4:25 p.m. in London, up from a 19-month low of 145 yesterday. Bond sales slowed after getting off to the busiest start to a December since 2008, with companies from Rio Tinto Plc (RIO) to French retailer Groupe Auchan SA leading 7.5 billion euros ($9.7 billion) of issuance this week.
“This week appears to be the final one for business to get done in any material way,” Suki Mann, a strategist at Societe Generale SA in London, wrote in a note to investors. “Demand is good and the market is squeezing, leaving room for 2-4 billion euros of supply should any stragglers be tempted to fund before the new year rush.”
A bigger-than-forecast jump of 146,000 to U.S. non-farm payrolls last month from a revised 138,000 increase in October failed to ease investor concerns that the nation will fail to resolve budget talks and avoid more than $600 billion in fiscal tightening by year-end. The pace of corporate bond issuance slowed from a record in November.
“Looking at the movements over the past week, we’ve come in too far,” Harpreet Parhar, a strategist at Credit Agricole SA (ACA) in London, said before the report. “Given that it’s non-farm payrolls morning, it’s probably a good excuse to lock in profits and take some money off the table.”
Corporate bond yields fell eight basis points this week to a record-low 1.83 percent, according to Bank of America Merrill Lynch’s Euro Non-Financial Index. The yield relative to benchmark German government debt narrowed two basis points to 118 this week.
Rio Tinto, the world’s second-largest mining company, led this week’s bond issuance with a 3.1 billion-euro three-part sale, data compiled by Bloomberg show. Auchan also tapped debt markets to price its first notes in more than a year. Credit Agricole, communications company Altice and Nexans SA (NEX), the world’s second-largest cable maker, are selling bonds today.
The Bundesbank lowered its 2013 projection for German economic growth to 0.4 percent from the 1.6 percent predicted in June a day after the European Central Bank cut its forecasts for the euro region. A tsunami alert was issued after a magnitude 7.3 earthquake hit Japan, the most powerful since last year’s record quake.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit rose four basis points to 479, signaling deterioration in perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased one basis point to 118, according to prices compiled by Bloomberg.
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: Abigail Moses in London at Amoses5@bloomberg.net