Bayerische Motoren Werke AG, the German luxury car maker, led European bond sales as the cost of insuring company debt rose for the second day.
BMW sold 1.75 billion euros ($2.3 billion) of senior unsecured bonds, its largest offering in the currency for a year, according to data compiled by Bloomberg. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield ratings rose seven basis points to a two-week high of 433.
Bond risk climbed amid signs that Germany’s economy, Europe’s largest, shrank in the fourth quarter and as U.S. Treasury Secretary Timothy F. Geithner warned that failure to lift the nation’s debt ceiling would hurt growth. Munich-based BMW is targeting another year of record auto sales in 2013 as the U.S. and China offset slumping demand in Europe.
“BMW is a strong name, it has high capital-market acceptance on the bond side and the company improved its already strong business and financial profile,” said Frank Hussing, a credit analyst at Commerzbank AG in Frankfurt.
BMW’s issue was split between 1 billion euros of bonds due October 2016 that were priced to yield 38 basis points more than the benchmark swap rate, and 2023 notes with a spread of 73 basis points, according to people familiar with the transaction. That compares with an average spread of 117 basis points on European company debt, the smallest gap since May 2011, Bank of America Merrill Lynch’s Euro Corporates Index shows.
Paris-based Electricite de France SA is marketing a four-part sale of subordinated notes in euros, pounds and dollars to European and U.S. investors, according to a person with knowledge of the deal who asked not to be named because they’re not authorized to speak about it.
In other debt sales, Deutsche Hypothekenbank AG in Hannover, Germany, and Oslo-based DNB Boligkredit AS priced covered bonds, securities backed by loans and guaranteed by the issuer. Sales of the debt will surpass 3.6 billion euros this week, on pace to beat the weekly average of 4.7 billion euros for the past year, data compiled by Bloomberg show.
The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies increased one basis point to 105, while the Markit iTraxx Financial Index of contracts on the senior debt of banks and insurers increased three basis points to 134.
A basis point on a credit-default swap contract 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.