The cost of insuring against losses on European high-yield corporate debt rose to the highest in two months after Bank of Japan policy makers refrained from increasing monetary stimulus.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings rose for a second day, jumping as much as 29 basis points to 477, the highest since April 5. The gauge was trading at 473 at 11:01 a.m. in London.
The BOJ’s decision not to take additional steps to spur growth or extend the maturity of bank loan facilities added to concern the U.S. Federal Reserve will wind down stimulus. The average yield investors demand to hold European corporate debt surged 29 basis points to 2 percent since Fed Chairman Ben S. Bernanke said May 22 that asset purchases could be tapered if the employment outlook showed sustained improvement.
“Global credit markets are now hostage to the rates markets,” said Simon Ballard, a senior credit strategist at National Australia Bank in London. “The prospect of rising underlying yields is clearly spooking investor sentiment at the moment.”
In the new-issue market, Rolls-Royce Holdings Plc, Europe’s largest maker of aircraft engines, is selling its first bonds since 2009, according to data compiled by Bloomberg. The London-based company is offering eight-year notes in euros that will be priced to yield 55 basis points more than the benchmark midswap rate and 13-year securities in pounds to yield 98 basis points more than gilts, according to a person familiar with the transaction.
Deere & Co., the world’s largest agricultural-equipment maker, has mandated Barclays Plc, Credit Suisse Group AG and HSBC Holdings Plc to arrange investor meetings in Europe starting June 18 for a possible sale of bonds in euros. It would be the Moline, Illinois-based company’s first debt offering in the currency since June 2011, data compiled by Bloomberg show.
The Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings rose as much as seven basis points to 113, the highest since April 19. An increase signals deterioration in perceptions of credit quality.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed nine basis points to 167 and the subordinated index rose 12 basis points to 242.
A basis point on a credit-default swap protecting 10 million euros ($13.3 million) 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.