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Credit Risk Approaches Month-High in Europe Amid Taper Concern

Jan. 14 (Bloomberg) -- The cost of insuring corporate bonds against losses rose to the highest in almost a month in Europe amid increased focus on stimulus reduction in the U.S.

The Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings rose two basis points to 73 basis points at 1:18 p.m. in London, the highest since Dec. 18. The Markit iTraxx Crossover Index of 50 companies with mostly speculative-grade ratings climbed five basis points to 289 basis points, the highest since Dec. 20.

“There are concerns about the speed of tapering in the U.S., Japan’s current-account deficit widened and equities are a bit nervous,” said Juan Esteban Valencia, a Paris-based credit strategist at Societe Generale SA. “There is a lack of positive news, so the indexes are widening after a strong run.”

Federal Reserve Atlanta President Dennis Lockhart said yesterday weak U.S. payrolls in December shouldn’t deter plans to reduce monthly bond purchases. Markets are also retreating after Japan reported a record 592.8 billion yen ($5.7 billion) shortfall in the widest measure of trade.

In the new issue market today, Snam Spa, the owner of Italy’s biggest natural-gas network, is selling 600 million euros ($820 million) of 10-year notes in euros that will be priced to yield 128 basis points more than the mid-swap rate, a person familiar with the matter said. Beni Stabili SpA, an unrated Italian real-estate investor, is planning to issue 350 million euros of four-year bonds to yield 4.125 percent.

Volkswagen AG, Europe’s largest carmaker, sold 750 million euros of floating-rate notes due January 2016, according to data compiled by Bloomberg. The securities yield 30 basis points more than the three-month euro interbank offered rate.

Borrowing costs for investment-grade companies in Europe fell three basis points to 2.02 percent, the lowest since Dec. 3, while the average yield on speculative-grade notes dropped one basis point to an all-time low of 4.82 percent, Bank of America Merrill Lynch index data show.

To contact the reporter on this story: Katie Linsell in Madrid at klinsell@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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