Bond Sales Slow Amid Climbing Credit Risk in Europe on Stimulus
Sales of corporate bonds in Europe fell to the lowest in two months this week as the cost of insuring the debt against losses rose with investors anticipating a withdrawal of central banks’ stimulus measures.
Coca-Cola HBC AG (CCH), the world’s second-biggest bottler of the soft drink, and Rolls-Royce Holdings Plc (RR/), Europe’s largest maker of aircraft engines, led companies selling 6.3 billion euros ($8.4 billion) of bonds, down from 12.3 billion euros last week and the least since the week ending April 6, according to data compiled by Bloomberg. The Markit iTraxx Europe Index of credit-default swaps protecting against losses on 125 investment-grade borrowers was up four basis points on the week to 108.
Credit investors are concerned the U.S. Federal Reserve will trim its bond-buying program if it sees sustained employment growth, restricting support that has kept borrowing costs near record lows. Bank of Japan policy makers decided not to take additional steps to spur growth or extend the maturity of bank loan facilities earlier this week.
“Appetite for risk has declined substantially for now and for this reason we saw only a few new deals this week,” said Oliver Woyda, a money manager at Deka Investment GmbH in Frankfurt, which oversees about 20 billion euros. “Speculation around the Fed cutting stimulus is the most important trigger.”
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings rose 14 basis points this week to 449.
The index was 22 basis points lower today after the Wall Street Journal said Fed officials are likely to push back on expectations of a rate increase and an adjustment in their $85 billion a month bond-buying program won’t mean it will end all at once.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers, which dropped 7.75 basis points today, is up six basis points on the week at 157.
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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