Bond Risk Falls to 16-Week Low in Europe as Summers Ends Fed BidKatie Linsell
The cost of insuring corporate bonds against losses fell to the lowest in 3 1/2 months in Europe as Lawrence Summers withdrew from the race to become the next Federal Reserve chairman, easing concern the central bank will soon end its stimulus program.
The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings fell 3.8 basis points to 94 basis points at 10:35 a.m. in London, the lowest since May 23. British mobile phone retailer Phones4u Finance Plc is meeting investors for a planned sale of 200 million pounds ($319 million) of senior payment-in-kind toggle notes maturing in 2019, according to a person familiar with the matter.
Summers withdrew from contention before the Fed begins a two-day meeting tomorrow amid speculation it will begin paring unprecedented bond purchases. The former Treasury secretary would tighten policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke at the central bank, according to a Bloomberg Global Poll of investors, analysts and traders last week.
“Yellen’s potential appointment would be viewed by market participants as dovish since she would likely maintain the existing policy stance, which is positive for global fixed income and credit spreads,” analysts led by Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London, wrote in a note to clients.
The Markit iTraxx Crossover Index of 50 companies with mostly speculative-grade ratings dropped 11 basis points to 381 basis points, the lowest since May 22.
Phones4u’s PIK notes will give it the option of paying coupons with cash or more debt and can be bought back by the company after 1 1/2 years. The Newcastle-under-Lyme-based retailer, which is owned by private-equity firm BC Partners Ltd., will sell the debt through its Phosphorus Holdco Plc unit to pay dividends to shareholders and other fees and expenses, according to the person, who asked not to be identified because the terms aren’t set.
Another borrower planning a potential high-yield bond sale in the U.K. is mortgage loan provider Jerrold Finco Plc. The company will begin meeting investors tomorrow to market 200 million pounds of five-year securities, another person said. The notes will be used to refinance some of the company’s loans.
Australian toll road operator Transurban Group has hired banks to arrange meetings with investors in Europe starting Sept. 23 for a potential euro-denominated bond sale that would be the company’s debut in the currency.
The average yield demanded to hold investment-grade bonds in euros dropped to 2.07 percent on Sept. 13, the lowest in two weeks, Bloomberg index data show. Borrowing costs for speculative-grade companies are holding near the highest since July 19 at 4.96 percent.
In the new issue market today, Apetra NV, a manager of Belgium’s oil stocks, is raising 400 million euros ($534 million) from 10-year bonds in the Brussels-based company’s first debt sale since December.