Spain’s Gas Natural Leads Corporate Bonds Higher as Risk Drops
Spanish utility bonds rallied the most of any European corporate debt this week as borrowers led by Gas Natural SDG SA (GAS) benefited from the country sidestepping a junk rating. Credit pared its rally after the end of a two-day European Union summit.
Bonds sold by Spain’s largest energy company were the top- three performers in Europe’s corporate debt market and took six of the top 10 places in Bank of America Merrill Lynch’s EMU Corporates, Non-Financial index. Barcelona-based Gas Natural’s 750 million euros ($979 million) of 5.125 percent notes due November 2021 rose 4.3 percent this week, the index shows.
Gas Natural was the biggest beneficiary of a credit-market rally as Moody’s Investors Service maintained its investment- grade rating for Spain, citing the European Central Bank’s willingness to buy the country’s debt and prevent it losing access to bond markets. Bonds pared their rise after politicians meeting in Brussels failed to discuss giving more financial help to Spain.
“‘Investors who may have previously been underweight peripheral names relative to benchmarks are increasingly looking to pick up yield relative to the issuers domiciled in the core countries,” said Brian Barry, an analyst at Investec Bank Plc in London.
Spain’s 10-year bond yield dropped to a seven-month low of 5.26 percent, from 5.625 percent a week ago, while the cost of insuring the nation’s debt using credit-default swaps plunged 21 percent to 278 basis points as of 1:36 p.m. in London. That’s near the lowest since July 2011, according to Bloomberg data.
The contracts have dropped 57 percent from their record- high of 647 basis points reached on July 25. Credit-default 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. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
The EU summit in Brussels that concluded today failed to discuss further financial assistance for Spain, French President Francois Hollande said. Germany and France agreed to enforce common banking regulation for the euro area’s 6,000 lenders by the end of next year.
Continued uncertainty over Spain slowed the weekly rally spurred by Moody’s Oct. 16 confirmation of the country’s sovereign rating at Baa3 with a “negative outlook.” The New York-based ratings company was concluding its review for a potential downgrade initiated in June.
The Markit iTraxx Crossover Index of swaps linked to the debt of 50 mostly junk-rated European companies fell 50 basis points this week to 492, the biggest weekly drop since Sept. 7, according to prices compiled by Bloomberg. The contracts climbed 10 basis points today.
Bank credit risk also fell in the week, with the Markit iTraxx Financial Index on the senior debt of 25 banks and insurers down 16 basis points at 163, before paring the decline.
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