Fresenius SE & Co., the German medical equipment maker, joined facilities service provider La Financiere Atalian SA in selling Europe’s first junk bonds this year as yields on the debt dropped to the lowest ever.
Fresenius and Atalian’s deals are the first speculative-grade offerings since the start of December and follow last year’s record junk-bond issuance. Deutsche Telekom AG led sales with a 2 billion-euro ($2.6 billion) offering that lifted this week’s total issuance to 16 billion euros, the most in a month, according to data compiled by Bloomberg.
Yields on junk bonds have sunk to 5.3 percent from 12 percent a year earlier as investors seek riskier alternatives to plummeting rates on safer securities, according to Bank of America Merrill Lynch data. Borrowers sold 77 billion euros of junk-rated debt last year, data compiled by Bloomberg show.
“This year should be busy in terms of new issuers being coaxed into the high-yield bond market,” said Stuart Stanley, a fund manager at Invesco Asset Management Ltd. in London, who oversees $3 billion of high-yield bonds. “I’d imagine we’d surpass last year’s levels.”
Fresenius raised 500 million euros from notes due July 2020 that were priced to yield 2.875 percent, the company’s lowest-ever yielding debt, data compiled by Bloomberg show. The Bad Homburg, Germany-based company is rated Ba1 by Moody’s Investors Service and BB+ at Standard & Poor’s and Fitch Ratings.
Paris-based Atalian priced 250 million euros of seven-year bonds to yield 7.25 percent, a person with knowledge of that sale said. The notes, which can be repaid after four years, are ranked B+ by S&P.
Speculative-grade, or junk, debt is rated below Baa3 by Moody’s and BBB- by Fitch and S&P.
Deutsche Telekom, Germany’s largest phone company, issued senior unsecured bonds in a two-part deal that included 15-year securities, the longest-dated notes in euros sold by a European borrower since insurer Assicurazioni Generali SpA sold 20-year securities in December, data compiled by Bloomberg show.
Bonn-based Deutsche Telekom’s 4.5 percent bonds due 2030 fell 0.3 percent, pushing the yield relative to the benchmark swap rate up two basis points to 135 basis points, Bloomberg data show. That compares with a spread of 124 basis points on average for investment-grade company bonds, Bank of America Merrill Lynch’s Euro Corporate Index of securities with an average maturity of five years shows.
In credit derivatives markets, the Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings fell one basis point to 423. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was little changed at 103.
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.