Junk Bond Yields Drop to Two-Month Low as Intralot Deal Rallies

Speculative-grade bond yields in Europe dropped to the lowest in more than two months as issuance stalls in August. The only high-yield bond sold this month, from Greek gaming system developer Intralot SA, rallied.

The average yield investors demand to hold high-yield, high-risk, bonds fell to 4.7 percent yesterday, the lowest since June 4, according to Bloomberg bond index data. The 9.75 percent August 2018 securities, which were sold via Intralot Finance Luxembourg SA on Aug. 1, have climbed 4 cents to 103 cents on the euro, among the best performers this month.

Credit markets are rebounding from a selloff that saw high-yield investors in the region lose 2 percent in June after Federal Reserve Chairman Ben S. Bernanke signaled the central bank may start slowing stimulus measures aimed at boosting the U.S. economy. Sales of junk debt slowed after the busiest July on record with 6.8 billion euros ($9.1 billion) of issuance, data compiled by Bloomberg show.

“The fear that was around in May and June over aggressive imminent tapering has been pared back somewhat and that’s encouraged people to get back into high yield,” said Jim Reid, head of fundamental strategy at Deutsche Bank AG in London. “Still, the market is quiet at this time of year as people are on holiday and we’re not seeing much issuance.”

Intralot sold its 325 million euros of bonds, its first sale since 2006, after postponing a deal in June due to market conditions, people familiar with the matter said at the time.

Springer Science

German academic publisher Springer Science & Business Media sold 640 million euros of bonds yesterday rated CCC+ by Standard & Poor’s, seven levels below investment grade, in a private placement, data compiled by Bloomberg show. BC Partners Ltd., a London-based private-equity firm agreed to buy Springer Science for 3.3 billion euros in June.

It was the lowest-rated transaction since Faenza GmbH raised 306.7 million euros from 8.25 percent bonds on July 25, the data show. Faenza is an intermediate holding company established for the acquisition of ceramics supplier CeramTec GmbH by private-equity firm Cinven Partners LLP, according to Moody’s Investors Service.

The Markit iTraxx Crossover Index of default swaps on 50 high-yield companies dropped 1.8 basis points to 399 today after two days of increases. A decrease signals improvement in perceptions of credit quality. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings declined 0.7 basis point to 96 basis points.

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 reporters on this story: Katie Linsell in Madrid at klinsell@bloomberg.net; Natasha Doff in London at ndoff@bloomberg.net

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

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