VW Starts First Europe Corporate Bond Sale of This Year

Volkswagen AG sold Europe’s first corporate bonds of the new year as company borrowing costs relative to government debt fell to the lowest since April 2008.

The German carmaker was the region’s biggest issuer of debt last year, selling 9.8 billion euros ($12.8 billion) of bonds, and it has 6.5 billion euros of notes maturing this year, according to data compiled by Bloomberg.

The relative yield on European corporate bonds over government debt has fallen to 137 basis points, according to Bank of America Merrill Lynch’s Euro Corporate index, compared with 301 basis points at the start of 2012. The new issuance market has been dominated by banks so far this year and UniCredit SpA was in the market today with a 1 billion-euro covered bond deal.

“Given the strength of the market, Volkswagen is kicking the ball early and issuing with tight pricing,” said Geraud Charpin, a fund manager at Bluebay Asset Management Ltd. in London, which oversees $47 billion. “Autos are regular issuers so they have lots to do over the year, and the market is favorable.”

Europe’s biggest carmaker sold 1 billion euros of seven-year bonds that were priced to yield 78 basis points more than the mid-swap rate, according to data compiled by Bloomberg. Marco Dalan, a spokesman for Volkswagen, said the funds will be used to refinance existing borrowings.

Credit Derivatives

In credit derivative markets, the cost of insuring European bank debt fell to the lowest since April 2011 after central bank officials agreed to delay a liquidity rule that could have strangled interbank lending. Credit-default swaps linked to UniCredit and Intesa Sanpaolo SpA were the best-performing in the Markit iTraxx Europe index linked to 125 investment-grade companies.

Lenders will be allowed to use an expanded range of assets including some equities and securitized mortgage debt to meet the so-called liquidity coverage ratio, or LCR, after a deal was struck by regulators meeting in Basel, Switzerland yesterday.

UniCredit, Italy’s biggest bank, raised 1 billion euros from seven-year covered bonds that were priced to yield 150 basis points more than swaps. It was the Milan-based bank’s first covered bond transaction in euros since August, data compiled by Bloomberg show.

Default swaps on the lender dropped 22 basis points to 258 and contracts on Intesa Sanpaolo declined 12 to 239, both the lowest since July 2011, according to data compiled by Bloomberg at 3 p.m. in London.

The Markit iTraxx Financial index linked to swaps of 25 banks and insurers dropped three basis points to 122, and is down from 278 basis points at the start of last year. The Markit iTraxx Europe index fell 1.5 to 102.5.

Abbey National Treasury Services Plc, a unit of Banco Santander SA, is also raising 1 billion euros today from bonds due 2018, its first deal in the currency since February, according to data compiled by Bloomberg. The notes will be priced to yield 97 basis points more than the mid-swap rate, according to bankers.

Before it's here, it's on the Bloomberg Terminal.