Junk Bonds Head for Longest Winning Streak in 7 Months in EuropeNatasha Doff
High-yield corporate bonds in Europe are set to hand investors an eighth week of profits as the region’s economy emerges from a record-long recession.
Bonds of New World Resources Plc, the Czech coking-coal producer, led an average total return of 0.04 percent this week, the longest stretch of gains since the week ending Jan. 11, according to Bloomberg bond index data. The average yield on the debt fell for a seventh week to 4.66 percent, the lowest since May 31.
Euro-area exports increased in June for the first time in three months, adding to signs the economy is gaining strength as it exits from its longest ever slump. With unemployment holding at a record high, the European Central Bank has pledged to keep interest rates at the lowest levels for an “extended period,” even as speculation grows the U.S. Federal Reserve will begin scaling back stimulus next month.
“In the last week we’ve seen more positive data overall, which is usually good for riskier assets,” said Chris Higham, a fund manager at Aviva Investors Ltd. in London. “The hunt-for-yield trend is something we think will continue. We’ve seen a loosening of policy in the U.K. and the EU, so we’re a long way from any stimulus policy being withdrawn.”
New World’s notes maturing in January 2021, which are rated Caa3 by Moody’s Investors Service or nine levels below investment grade, returned an average 3.1 percent so far this week, reducing the unprofitable company’s losses this year to 53 percent, Bloomberg index data show.
The cost of insuring junk-rated bonds rose, with the Markit iTraxx Crossover Index of default swaps on 50 speculative-grade companies in Europe increasing 9.1 basis points this week to 410 basis points.
In the new issue market today, Australia & New Zealand Banking Group Ltd. has mandated banks to arrange investor meetings starting Sept. 2 for a possible sale of euro-denominated notes, according to a person with knowledge of the matter. Australia’s third-largest bank last sold benchmark-sized, non-covered bonds in the currency in May 2010, when it issued 1 billion euros ($1.3 billion) of 1.125 percent securities, data compiled by Bloomberg show.