Nestle Joins TFL Selling Bonds as Yields Rise
Nestle SA (NESN), the world’s biggest food company, and Transport for London are selling bonds after borrowing costs rose to a two-month high in Europe as data showed the region’s economic recovery is gaining pace.
Nestle is marketing 500 million euros ($658 million) of notes while TfL, which oversees the U.K. capital’s public transport system, is offering 20-year securities in pounds, according to people familiar with the deals. The average yield investors demand to hold investment-grade bonds in euros increased two basis points to 2.09 percent, the highest since July 3, according to Bloomberg index data.
Services and factory output in the euro-area expanded for a second month in August while in the U.K., services growth accelerated to the fastest pace since 2006, according to reports. In the U.S., data this week is forecast to show payrolls rose last month, bolstering the case for the Federal Reserve to begin scaling back stimulus.
“Any positive news we get regarding the economy is reflected in higher bond yields,” said Nicolo Bocchin, a Milan-based money manager at Aletti Gestielle SGR SpA, who helps oversee about 3 billion euros of assets. “Every company that can access this window of opportunity will do so because the more they wait, the higher the risk of financing at higher yields.”
Vevey, Switzerland-based Nestle is selling eight-year bonds to yield 20 basis points more than the mid-swap rate through its Nestle Finance International Ltd. unit. Officials at Nestle weren’t able to comment on the bond sale.
The maker of Nescafe coffee raised $500 million from 5 1/2-year bonds yesterday and the company is seeking to replace about 10 billion euros of credit lines.
TfL’s benchmark-sized sterling bonds will yield 58 basis points more than U.K. government debt. The London-based local authority last sold notes in May, when it issued 400 million pounds ($625 million) of debt due May 2045 offering a yield of 60 basis points more than gilts, Bloomberg data show.
A spokesman for TfL, who asked not to be named citing company policy, declined to comment on the sale until the terms are set.
Also in the new issue market today, Electricite de France SA, the biggest operator of nuclear reactors, is raising 500 million euros from 10-year bonds through its Reseau de Transport d’Electricite SA unit. The notes will yield 73 basis points more than swaps.
Swire Pacific Ltd (19), the Hong Kong trading house with interests spanning property, aviation, beverages and marine services, has mandated banks to arrange investor meetings in Europe starting Sept. 9 for a possible sale of its first euro-denominated notes, according to a person with knowledge of the matter.
Benchmark credit indexes rose for a second day as the potential for military action in Syria roiled markets. The cost of insuring against losses on European corporate debt climbed to the highest in three days, with the Markit iTraxx Europe index rising 1.6 basis points to 106 basis points at 12:19 p.m. in London.
After “U.S. Congress delayed potential action in Syria, companies want to tap the market before volatility returns and while there’s appetite from investors,” said Tony Bauchet, deputy head of credit research at Axa Investment Managers in Paris.