Corporate bond sales surged to the most in almost three years in Europe this week as the cost of insuring debt against losses fell to the lowest since 2010.
Petroleo Brasileiro SA (PETR4), Latin America’s biggest oil producer, led issuance of at least 40 billion euros ($54 billion), the busiest week since the period ending March 12, 2011, according to data compiled by Bloomberg. The Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies dropped to a four-year low of 69 basis points this week and was at 71 basis points at 1:41 p.m. in London.
Companies are making the most of low borrowing costs that are helping the region’s economic recovery gain momentum. European Central Bank President Mario Draghi strengthened his pledge yesterday to keep interest rates low for as long as necessary even as government bonds rallied and Ireland and Portugal returned to debt markets.
“Market conditions are very favorable,” said Andrea Cicione, a strategist at Lombard Street Research Ltd. in London. “Spreads are really compressed and yields are still low. We’re not too sure if rates are going to rise later in the year, but Draghi made it clear yesterday that the road to recovery is quite long.”
The average yield on high-grade corporate bonds in euros fell to a one-month low of 2.07 percent this week, according to Bank of America Merrill Lynch index data. The premium investors demand to hold the debt rather than government bonds dropped to 113 basis points, the lowest since May 30, the data show.
Petrobras, based in Rio de Janeiro, sold $5.1 billion of notes denominated in euros and pounds on Jan. 7 in its first European debt sale since September 2012, according to data compiled by Bloomberg. The deal helped propel emerging-market bond issuance in Europe to the fastest-ever start to a year, Bloomberg data show.
“We have had a fairly euphoric start on the supply front,” said Suki Mann, a credit strategist at Societe Generale SA in London. “Enough has been issued to keep the market content.”
Spanish banks are dominating new issues today, with Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), the nation’s two largest lenders, each marketing 1 billion euros of bonds, according to people familiar with the deals.
To contact the reporter on this story: Katie Linsell in Madrid at firstname.lastname@example.org