Credit Markets Head for Best Year Since 2009 as Bond Sales Surge

Dec. 14 (Bloomberg) -- The cost of insuring against default on corporate debt fell, heading for the first annual decline in three years, as bond sales by European non-financial companies are set for the best year since 2009.

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped three basis points today to a more than 16-month low of 460, and is down from 755 at the start of the year. Alcatel-Lucent SA’s 8.5 percent bonds due 2016 were the biggest gainers in Bank of America Merrill Lynch’s Euro High-Yield Index after the French phone-equipment maker reached a 1.6 billion-euro ($2.1 billion) financing deal with Credit Suisse Group AG and Goldman Sachs Group Inc.

Credit markets have rallied as the European Central Bank took unprecedented steps to protect the euro and prevent a breakup of the currency union. Telecom Italia is selling seven-year benchmark bonds in euros, adding to the 237 billion euros that non-financial companies raised this year, an 81 percent increase from 2011.

“We should take a second to dwell on what has been a fantastic year for credit,” Suki Mann, a strategist at Societe Generale SA in London, wrote in his final note for the year. “Unfortunately, 2013 is going to be much more of a challenge.”

Alcatel’s 2016 bonds jumped 4.8 percent to 103.11 cents on the euro, the highest since April. The notes’ yield, which moves inversely to the price, fell 1.7 percentage points to 7.6 percent.

Europe Index

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell one basis point today to 115, approaching the lowest since March and down from 173 at the end of last year. An decrease signals improvement in perceptions of credit quality.

The cost of insuring financial debt is heading for the biggest-ever annual decline and trading near the lowest levels since May 2011. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was unchanged today at 152 basis points after falling from 279 basis points Dec. 30. The subordinated index fell one basis point today to 258 and is down from 512 at the start of the year.

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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