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Credit Risk Ends Longest Rising Streak Since May 2012 in Europe

The cost of insuring corporate bonds against losses fell by the most in seven months in Europe, ending the longest rising streak since May 2012, as a rally in emerging-market currencies restored investor confidence.

The Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies fell 5 basis points to 80 basis points at 11:13 a.m. in London, the biggest drop since June 26. Contracts on high-yield debt fell by the most since June 7, with the Markit iTraxx Crossover index decreasing 16 basis points to 303 basis points.

“There’s a bit of a relief rally going on after some pretty broad-based weakness in emerging markets,” said Graham Neilson, chief investment strategist at Cairn Capital Ltd. in London. “I’m expecting the rally to endure for some days but after that I’d expect more volatility because the problems aren’t just a flash in the pan.”

Concerns that emerging-market turmoil will hurt global growth eased as currencies from Brazil to Turkey strengthened after India raised interest rates while Turkey’s central bank pledged to “use all tools” to meet the nation’s inflation target. Investor confidence was shaken by weaker Chinese manufacturing and the devaluation of Argentina’s peso at a time when the U.S. Federal Reserve is preparing to scale back stimulus.

“The derivative indices have taken a bit of a battering in the past couple of weeks,” said Jonathan Pitkanen, head of research at Threadneedle Asset Management in London. “There’s been a confluence of factors, including emerging markets, concern about central bank tapering, and the Chinese economy.”

High-Yield Issuance

In credit markets today, Fresenius SE is selling 200 million euros ($272 million) of 10-year notes that will be priced to yield 205 basis points to 225 basis points more than the mid-swap rate, according to a person familiar with the sale.

The German health-care services provider will issue the securities to partially repay or cancel a 1.8 billion-euro loan related to its purchase of 43 hospitals from Rhoen-Klinikum AG, said the person, who asked not to be identified because they’re not authorized to speak about it.

Fresenius sold high-yield bonds paying a record-low coupon on Jan. 9, issuing 300 million euros of 2.375 percent notes maturing in February 2019, according to data compiled by Bloomberg.

Jaguar Land Rover, a division of India’s Tata Motors Ltd., is marketing 300 million pounds ($497 million) of eight-year notes to fund a bond buyback, it said in a statement. The securities may be rated Ba2 by Moody’s Investors Service, two steps below investment grade, according to a person familiar with the matter.

The luxury carmaker is seeking to repurchase 500 million pounds of outstanding 8.125 percent senior notes due 2018, as well as $410 million of 7.75 percent securities maturing at the same time.

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