Credit Markets Pare Weekly Gain in Europe as Bond Sales Subside

Credit markets pared their biggest weekly rally since September and bond sales slowed in Europe as a rise in U.S. payrolls added to signs the Federal Reserve may stop buying bonds this year.

The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies rose six basis points to 425 at 2:20 p.m. in London, up from a 17-month low yesterday. French lenders Caisse de Refinancement de l’Habitat SA and Banque Federative du Credit Mutuel SA tapped bond markets after banks led 6.3 billion euros ($8.2 billion) of deals yesterday.

The U.S. jobless rate held at a revised 7.8 percent, matching the lowest since December 2008, Labor Department data show. Federal Reserve members said in the minutes of the Dec. 11-12 meeting that they may end quantitative easing in 2013, which Chairman Ben S. Bernanke has said would continue until the labor market improves.

“If QE is finished sooner than expected, yields could go up quicker than everyone thinks,” said Barnaby Martin, a credit strategist at Bank of America Corp. in London.

With corporate bond yields near record lows, investors are seeking riskier assets from Europe’s most indebted countries. The premium investors demand to hold Ireland’s Electricity Supply Board’s 6.25 percent bonds due 2017 instead of benchmark German government debt narrowed by 363 basis points to 227 since they were issued in September. The spread on Telecom Italia SpA’s 4.5 percent 2017 bonds tightened 157 basis points to 240 since their issue in September.


BFCM and CRH issued securities as yields on financial company debt are 2.1 percent on average, according to Bank of America Merrill Lynch’s Euro Financial index. That’s just above the record-low 2 percent on Dec. 28.

BFCM in Strasbourg raised 1.25 billion euros from five-year bonds that will yield 72 basis points more than the swap rate, people familiar with transaction said. That compares with an average 153 basis points for securities in Bank of America Merrill Lynch’s financial index.

Paris-based CRH sold 1 billion euros of 12-year covered bonds, securities backed by loans and an issuer guarantee, at a spread of 46 basis points, said people familiar with the deal, who asked not to be named because they’re not authorized to speak about it.

Spain’s Banco Bilbao Vizcaya Argentaria SA and BNP Paribas SA led yesterday’s bond sales, which were more than double last year’s daily average of 2.8 billion euros, according to data compiled by Bloomberg.

Credit Rally

Even though bond sales subsided compared with yesterday, banks and companies are already putting their funding plans in place for 2013. Deutsche Bank AG plans to sell 10-year senior unsecured bonds, while U.S. satellite-television producer DirecTV will meet fixed-income investors in Europe this quarter, according to people with knowledge of the deals.

The Markit iTraxx Crossover Index fell 11.8 percent this week, the biggest decline since the beginning of September, data compiled by Bloomberg show.

Credit-default swaps insuring senior financial debt rose one basis point today, paring this week’s 12 percent decline, according to the Markit iTraxx Financial Index. The Markit iTraxx Europe Index of contracts on 125 investment grade companies increased one basis point to 104.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. 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.

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