Company bond sales in Europe dropped to their lowest in a decade this week as the relative cost of borrowing climbed to the highest since July amid turmoil triggered by the region’s deficit crisis.
Just 1.35 billion euros ($1.8 billion) of notes were issued, compared with 6 billion euros last week, according to data compiled by Bloomberg, the least excluding holiday periods since December 2000. Dong Energy A/S, the Danish state-owned utility, terminated an offer to buy back hybrid capital securities and postponed a planned sale of the notes.
“Turmoil in peripheral Europe coupled with the approach of year-end means investors are staying cautious and holding onto their cash,” said Felix Freund, a Frankfurt-based portfolio manager at Union Investment GmbH, which oversees 160 billion euros of assets.
The European Central Bank acted to ease “acute” tensions in financial markets yesterday with President Jean-Claude Trichet extending emergency liquidity measures and government bond purchases. The extra yield investors demand to hold investment-grade debt instead of sovereign debt climbed to 187 basis points yesterday, the highest since July, according to Bank of America Merrill Lynch index data.
Dong Energy said it cancelled the redemption of its hybrid capital bonds because of “unusually volatile market conditions.”
BG Energy Capital Plc, a unit of U.K. energy company BG Group Plc, and CEZ AS, the Czech Republic’s largest power producer, led the week’s issues by selling 250 million euros in bonds each, according to data compiled by Bloomberg.
“Even with a nice premium available, fund managers are less willing to risk putting money to work right now due to the lack of liquidity in the market which makes it very hard to trade the bonds afterwards,” Freund said.