Banks Market Notes in Euros as Bond Risk Falls to Seven-Week Low

UniCredit SpA, Italy’s biggest bank by market value, Bank of America Corp. and Banco do Brasil SA are among financial companies marketing euro-denominated bonds as corporate credit risk in the region falls to the lowest in seven weeks.

UniCredit sold 750 million euros ($984 million) of two-year floating-rate notes, while Bank of America priced 1.5 billion euros of seven-year securities and Banco do Brasil is selling five-year notes, according to people familiar with the offerings, who asked not to be identified because the details are private. The cost of insuring corporate bonds in Europe fell, with the Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings declining 2.2 basis points to 103.1, the lowest since May 30.

Federal Reserve Chairman Ben S. Bernanke will deliver his second day of semi-annual testimony to Congress on monetary policy today, after damping concern yesterday that the central bank will start curbing stimulus measures. Yields on corporate debt fell to a month-low yesterday of 2.09 percent, down from an eight-month high of 2.38 percent on June 24, Bank of America Merrill Lynch index data show.

“The fear around Fed tapering has calmed somewhat after a sharp spike in volatility last month,” said Roger Doig, a London-based credit analyst at Schroders Plc, which manages 237 billion pounds ($360 billion) of assets globally. “Now yields have fallen and issuers are taking advantage.”

UniCredit Notes

UniCredit priced its two-year notes to yield 160 basis points more than three-month Euribor, a person familiar with the matter said.

“This transaction is part of the ordinary execution of the group’s funding plan,” Andrea Morawski, a spokeswoman for UniCredit in Milan, said in an e-mailed response to questions.

Bank of America’s bonds will yield 112 basis points more than the midswap rate, while the lender is also selling 10-year notes in dollars, according to people familiar with the sales. The Charlotte, North Carolina-based bank is offering to buy back as much as $5 billion of senior notes due 2014, according to a statement today.

Jerome Dubrowski, a Charlotte-based spokesman for Bank of America, declined to comment on the bond sale.

Banco do Brasil is selling notes due 2018 that are expected to yield about 4 percent. It would be the Brasilia-based lender’s first transaction in euros since 2011, according to data compiled by Bloomberg. A spokesman for Banco do Brasil, who declined to be identified citing company policy, wasn’t immediately able to comment on the financing.

Sumitomo Mitsui Banking Corp., the lending unit of Japan’s second-biggest bank by market value, hired banks for a possible sale of 10-year senior bonds in euros.

High Yield

In the high-yield bond market today, Schaeffler Holding GmbH & Co., a holding company for German industrial-bearing maker Schaeffler AG, is marketing the equivalent of about 1.5 billion euros of five-year payment-in-kind toggle notes in euros and dollars through its Schaeffler Holding Finance BV unit. The dollar tranche is expected to yield 7 percent to 7.25 percent while the euro portion is being marketed at 7.25 percent to 7.5 percent, the person said.

Marlin Intermediate Holdings Plc, a buyer of U.K. consumer debt, is selling 150 million pounds of seven-year senior secured notes yielding about 10.5 percent, according to a person familiar with the deal. Moody’s Investors Service assigned Marlin a provisional B2 rating, five levels below investment grade, in a report yesterday.

Default Swaps

The Markit iTraxx Crossover Index of default swaps on 50 companies with high-yield credit ratings fell 10.2 basis points to 407.7, the lowest since May 28. A decrease signals improvement in perceptions of credit quality.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped 7.1 basis points to 151.8, the lowest since June 7, and the subordinated index fell 10.2 basis points to a month-low of 226.9.

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.