Corporate Debt Investors in Europe Make Money for Fourth Week

Investors in euro-denominated company bonds are making money for a fourth week, the longest streak of gains since before a bond rout drove yields to a nine-month high in June.

The notes returned 0.2 percent this week through July 18, poised for the longest run of weekly increases since the period ending May 3, according to Bank of America Merrill Lynch index data. Yields rose to 2.38 percent on June 24, the highest since Oct. 11.

Federal Reserve Chairman Ben S. Bernanke helped to calm bond markets from the U.S. to Europe last week when he said monetary policy will remain “highly accommodative” for the foreseeable future, a message he repeated yesterday. Yields had surged last month after he indicated quantitative easing could be scaled back later this year if the U.S. economy showed sustained improvement.

“The market took it as somewhat dovish that Bernanke indicated that the pace of tapering was not predetermined,” said Hans Lorenzen, a strategist at Citigroup Inc. in London. “When the markets all turned around with the news that U.S. yields were stabilizing, the path of least resistance for credit markets was to go tighter.”

The average yield investors demand to hold corporate bonds in euros fell to 2.07 percent yesterday, according to Bank of America Merrill Lynch index data. The spread over benchmark government debt has narrowed to 153 basis points from a near nine-month high of 155 basis points reached July 3, the data show.

Credit Risk

The cost of insuring European corporate bonds against losses fell for a fourth week, the longest streak of declines since August 2012, according to data compiled by Bloomberg. The Markit iTraxx Europe index has fallen 7.2 percent so far this week, the most since the week ending May 3.

Citigroup Inc. bonds led returns in the region this week, handing investors 0.38 percent, Bank of America Merrill Lynch data show. Telecom Italia SpA was the worst performer, losing

1.2 percent.

Corporate bond issuance in Europe slowed to 11.6 billion euros this week from 14.6 billion euros last week, according to data compiled by Bloomberg.

America Movil SAB, the wireless carrier controlled by Mexican billionaire Carlos Slim, led sales with an equivalent

1.1 billion euros of bonds denominated in euros and pounds, Bloomberg data show.

PIK Issuance

Schaeffler Holding GmbH & Co., the parent of the German family-owned industrial-bearing maker, led high-yield sales with an equivalent 1.56 billion euros ($2 billion) of payment-in-kind toggle bonds in euros and dollars. It was the biggest PIK deal since 2008, according to data compiled by Bloomberg data. PIK notes give borrowers the option to pay interest with more debt.

Quintain Estates & Development Plc, a U.K. property developer, has mandated banks to arrange a possible sale of seven-year notes in pounds, a person familiar with the deal said today, asking not to be identified because the details are private. It would be the London-based company’s first bond sale, Bloomberg data show.

Sumitomo Mitsui Banking Corporation is marketing 10-year bonds in euros to yield about 100 basis points more than the mid-swap rate, said a person familiar with the matter. The Tokyo-based bank last sold bonds in the single currency in October 2010, Bloomberg data show.