New Look Gains as Junk Pound Bond Spread Narrows to 3-Year Low

Bonds of New Look Retail Group Ltd. led gains in the sterling high-yield debt market after average yield premiums narrowed to the least in more than three years.

The U.K. fashion chain’s five-year notes climbed for a fifth day, reaching 101.3 pence on the pound at 12:09 p.m. in London, according to Bloomberg data. The extra yield investors demand to hold speculative-grade bonds rather than U.K. gilts fell 10.6 basis points to 485.1 basis points, the lowest since April 2010.

Demand for riskier securities is increasing with returns on the debt poised to outpace investment-grade bonds for a fourth month, according to Bloomberg bond index data. Speculative-grade pound bonds returned an average 0.5 percent in August compared with losses of 0.8 percent for the higher-rated notes.

“Even though the high-yield market is growing in size, there has been less issuance than money flowing into the funds,” said Hans Peter Lorenzen, a credit strategist at Citigroup Inc. in London. “As the return potential in investment grade gets more constrained, money is still being pushed into high yield.”

In the new issue market today, Asian Development Bank is adding 100 million pounds ($155 million) of bonds to its 425 million pounds of debt maturing December 2015, according to a person familiar with the deal, who asked not to be identified because the terms aren’t set. The new notes may be priced to yield about 23 basis points more than gilts, the person said. That existing securities were priced at a spread of 44 basis points, data compiled by Bloomberg show.

Finnair OYJ has mandated banks to arrange investor meetings starting Aug. 19 for a possible sale of euro-denominated notes, according to a person with knowledge of the matter. The Helsinki-based airline last sold bonds in November 2012, when it issued 120 million euros of hybrid securities to yield 8.875 percent, data compiled by Bloomberg show.

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