Bayerische Motoren Werke AG is issuing its first benchmark bonds in euros since January as European corporate credit risk fell to the lowest in three weeks.
The German luxury carmaker is raising 1 billion euros ($1.3 billion) of debt maturing in July 2017, according to data compiled by Bloomberg. Vinci SA, Europe’s biggest builder, also offered floating-rate notes as the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies fell 3.5 basis points to 111.5 at 11:45 a.m. in London, the lowest since March 18.
Credit markets are buoyed by speculation central banks around the world will keep supporting stimulus efforts. Japanese Prime Minister Shinzo Abe said that “bold monetary easing” will reverse persistent deflation in his nation.
“High-rated issues are priced very expensively with yields at such low levels, so we are very selective,” said Oliver Woyda, a money manager at Deka Investment GmbH in Frankfurt, which oversees about 20 billion euros. “A lot of investors may decide to keep older bonds with higher coupons instead of running into new issues.”
The extra yield investors demand to hold European corporate bonds rather than government debt is 116 basis points, near the 20-month low of 109 basis points reached on Jan. 8, Bank of America Merrill Lynch’s Euro Non-Financial Index shows.
BMW’s bonds are being sold through BMW U.S. Capital LLC and will be priced to yield 35 basis points more than the benchmark mid-swap rate, according to people familiar with the transaction. The company is rated A by Standard & Poor’s and A2 by Moody’s Investors Service, the sixth-highest investment-grade levels.
Mathias Schmidt, a spokesman for BMW, didn’t immediately respond to an e-mail seeking comment.
France’s Vinci is raising 500 million euros from three-year floating-rate notes that will be priced to yield 58 basis points more than three-month Euribor. Vinci, based in the Paris suburb of Rueil-Malmaison, is rated BBB+ by S&P and Baa1 by Moody’s, two grades below BMW. Maxence Naouri, a spokesman for Vinci, didn’t immediately respond to an e-mail seeking comment.
German industrial gas supplier Linde AG is selling 10-year euro benchmark bonds that will yield 45 to 50 basis points more than swaps and at least $300 million of five-year securities with a spread of about 70 basis points. It is the Munich-based company’s first sale of euro securities since September and first dollar bonds in a year, Bloomberg data show.
A spokesman for Linde, who asked not to be identified citing company policy, said the funds will help refinance a $4.5 billion acquisition loan used to buy Lincare Holdings Inc.
In the credit derivatives market, the Markit iTraxx Crossover Index of contracts on 50 companies with mostly high-yield ratings dropped 14 basis points to 456, while the Markit iTraxx Financial Index of swaps on the senior debt of banks and insurers fell five basis points to 163.
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.