Corporate credit risk fell to the lowest in more than four years in Europe as policy makers’ plans for more economic stimulus pushed borrowing costs down to a record.
The cost of insuring against losses on company debt dropped, with the Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings declining one basis point to 65.5 basis points at 9:45 a.m. in London. Contracts on an index of junk-rated bonds approached the lowest since July 2007.
European Central Bank President Mario Draghi signaled last week there would be fresh monetary stimulus in June, and another interest-rate cut may top the list of options. Average yields on investment-grade corporate bonds dropped to an all-time low of 1.7 percent, according to Bank of America Merrill Lynch index data.
“There are a lot of expectations that the ECB will act,” said Harpreet Parhar, a London-based strategist at Credit Agricole SA. “Whatever they do it will take us one step closer to quantitative easing. The tone of the market is positive.”
Cheap borrowing costs are triggering a surge of issuance. Diageo Plc, the world’s biggest distiller, is selling five- and 12-year notes in its first euro-denominated bond sale since 2008, according to data compiled by Bloomberg.
Jefferies Group LLC, the New York-based investment bank owned by Leucadia National Corp., is marketing its first benchmark-sized notes in euros while Heathrow Airport Ltd., the operator of Europe’s biggest aviation hub, plans to issue 500 million euros ($689 million) of bonds in its first offer in the currency in two years.
Companies including U.S. borrowers Illinois Tool Works Inc. and Paccar Inc. sold 6 billion euros of bonds in Europe yesterday, according to data compiled by Bloomberg.