Corporate Bond Sales Slow in Europe on Fed Stimulus Speculation

Sales of corporate bonds in Europe fell to the lowest in nearly two months this week as concern the Federal Reserve will taper asset purchases roiled markets.

U.K. tour operator Thomas Cook Group Plc (TCG) and French real estate investment company Gecina SA (GFC) were among companies that sold 8.4 billion euros ($10.9 billion) of bonds, down from 19.5 billion euros last week and the least since the week ending April 6, according to data compiled by Bloomberg. The cost of insuring the debt rose, with the Markit iTraxx Europe Index of credit-default swamps climbing 4.5 basis points to 96.

Fed chairman Ben S. Bernanke said the central bank may begin tapering bond purchases “in the next few meetings” as long as the U.S. economy continues to grow. Disappointing manufacturing data in China added to market turmoil while a public holiday in parts of Europe also slowed sales.

“There’s been a perceptible change in sentiment to the negative, driven by evolving interpretations of the Fed’s and other central banks’ policies as well as weaker data coming out of China,” said Richard Phelan, head of European credit research at Deutsche Bank AG in London. “We’ve had an environment of steady tightening and large amount of new issues since the beginning of the year but now people are paying closer attention to the underlying credit performance and earnings misses.”

Since the beginning of the year, analysts have lowered their projections for 2013 earnings of companies in the Euro Stoxx 50 Index by 6.4 percent to 232.51 euros per share as of May 23.

Junk Issuance

Sales of high-yield bonds totaled 1.9 billion euros this week, up from 700 million euros the previous period, according to data compiled by Bloomberg.

Companies sold a record 43.4 billion euros of junk debt this year as borrowing costs fell, with the average yield investors demand to hold speculative-grade debt falling to 5.07 percent, just above an all-time low of 5.01 percent reached May 10, according to Bank of America Merrill Lynch’s Euro High Yield Constrained Index. (SX5E)

“The high-yield market, in particular, is positioned for a multiyear bonanza of new issuance,” said Phelan. “In terms of this week’s slowdown in new issuance, I’d say it’s merely a lull.”

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

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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