The cost to insure company debt from default fell to a nine-month low in Europe on optimism Greece’s bond buyback will unlock aid and the Federal Reserve will announce steps to stimulate economic growth.
The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies fell 1 basis point to 114, the lowest since March 27. Bond issuance slowed with only JPMorgan Chase & Co. and cable maker Nexans SA (NEX) selling debt after the busiest start to a December since 2008.
The Federal Open Market Committee will probably announce $45 billion in monthly Treasury buying after a two-day meeting that ends today, a Bloomberg News survey of economists showed. Greece said investors tendered enough bonds in its buyback offer to free up International Monetary Fund and European Union funds, a government official said yesterday.
“In the absence of any immediate negatives, and in anticipation of FOMC policy action, it’s likely we’ll see risk assets trade slightly better through the day,” said Brian Barry, a London-based analyst at Investec Bank Plc. “There is a somewhat subdued feel to the market due to the fact we are approaching year-end and investors are becoming more focused on having their portfolios properly aligned.”
Companies sold 4.6 billion euros ($6 billion) of bonds this week, down from about 7.5 billion euros last week, according to data compiled by Bloomberg.
Nexans, the world’s second-largest cable maker, is raising 250 million euros from senior unsecured notes due in 2018, according to a person familiar with the matter. The Paris-based company, rated BB by Standard & Poor’s, will price the notes to yield about 4.625 percent, said the person, who asked not to be named because they’re not authorized to speak about it.
JPMorgan is selling benchmark-sized 14-year bonds in pounds, according to a person with knowledge of the matter.
Bonds of Barry Callebaut AG, the largest maker of bulk chocolate, led declines in Bank of America Merrill Lynch’s Euro Non-Financial index after it announced it will use debt to fund its $950 million acquisition of a unit of Singapore-based Petra Foods Ltd. (PETRA)
Barry Callebaut expects the debt-funded acquisition will result in a downgrade to BB+, one step below its current investment-grade ranking of BBB- by Standard & Poor’s and equivalent Baa3 by Moody’s Investors Service. The company has the potential to regain its investment-grade status in a few years, it said in the statement.
The Zurich-based company’s 5.875 percent bonds due 2021 dropped 2.5 percent to 115.83 cents on the euro, pushing the yield to a three-month high of 3.3 percent, data compiled by Bloomberg show.
The Markit iTraxx Financial Index of credit-default swaps on senior debt issued by banks and insurers fell one basis point to 151. The financial subordinated index dropped two basis points to 260.
The Markit iTraxx Crossover Index of 125 companies with investment-grade ratings declined one basis point to 114.
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.
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