Vodafone Sells Longest-Dated Pound Bond This Year as Yields Drop

Vodafone Group Plc sold the longest-dated corporate bond in sterling this year, locking in record-low borrowing costs for four decades.

Europe’s largest mobile-phone operator issued 1 billion pounds ($1.3 billion) of notes due in August 2056, according to data compiled by Bloomberg. The notes were priced to yield 1.70 percentage points more than benchmark rates after initially being offered at a premium of 1.85 percentage points, according to a person familiar with the matter who isn’t authorized to speak publicly and asked not to be identified. The company sold a 33-year security on Monday.

“It seems quite opportunistic to be issuing again so soon after the bond issue early this week,” said Craig Veysey, London-based head of fixed income at Sanlam Private Investments, which oversees $45 billion. “I would expect there to be more issuance at these relatively lower corporate bond yields. It’s in the issuer’s interest to do so while they can borrow so cheaply.”

Vodafone is seeking to capitalize on investor demand for assets with higher interest payments as central bank stimulus crushes yields globally. The Bank of England on Thursday cut its main bank interest rate and announced a 10-billion pound corporate-debt purchase program to ward off recession in the wake of the U.K.’s decision to leave the European Union.

Officials at Newbury, England-based Vodafone declined to comment on the sale.

Credit Risk

Average yields on the longest-dated investment-grade sterling debt fell the most in seven years on Thursday to a record-low 2.75 percent, according to Bank of America Merrill Lynch Index data. Investors demand 1.43 percentage points of extra yield to hold the notes instead of government bonds, the data show.

The cost of insuring corporate debt against default in Europe is also falling. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies is set for a sixth weekly decline, the longest streak since November 2006, according to data compiled by Bloomberg. The gauge fell two basis points on Friday to 67 basis points and is the lowest level in a year.

The Bank of England cut interest rates for the first time in seven years on Thursday, announced plans to buy government and corporate bonds and followed the European Central Bank in signaling it will take more action if needed.

The new stimulus has “opened the floodgates and there are talks of more deals next week,” said Paola Binns, a portfolio manager at Royal London Asset Management in London, which oversees about 85 billion pounds. “It looks like it’s going to be pretty busy in the next few days.”

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