Junk Bond Risk Falls for Fifth Day as Louis Dreyfus Markets DebtKatie Linsell
The cost of insuring high-yield corporate bonds against losses in Europe dropped for a fifth day to the lowest in more than six years as Louis Dreyfus Commodities markets 500 million euros ($680 million) of bonds.
The Markit iTraxx Crossover index of credit-default swaps on 50 junk-rated European companies fell 2.5 basis points to 312 basis points, the lowest since October 2007, at 12:18 p.m. in London. The unrated global commodity trader is selling seven-year bonds to yield 4 percent, according to a person familiar with the matter.
Investor demand for higher yielding assets is being stoked in Europe by tentative economic growth and as policy makers maintain stimulus measures and keep borrowing costs at record lows. European Central Bank officials have said they still have options for easing monetary policy further after the bank cut its benchmark interest rate to a low of 0.25 percent this month.
“There aren’t many areas where you can find good yield in fixed income,” said Andrea Cicione, a strategist at Lombard Street Research Ltd. in London. “Investors feel relatively comfortable taking risks because of the signs of recovery in the European economy.”
Gross domestic product in the euro area rose for a second quarter, increasing 0.1 percent in the three months through September, following a 0.3 percent expansion in the previous three-month period. Economists estimate that GDP will increase 0.4 percent in the fourth quarter, according to a Bloomberg survey published on Nov. 18.
The average yield investors demand for speculative-grade bonds fell to a record low of 4.96 percent yesterday, Bank of America Merrill Lynch index data show.
Credit-default swaps on investment-grade bonds are little changed near a 3 1/2 year low. The Markit iTraxx Europe Index of swaps on 125 companies is at 77 basis points, less that 0.3 basis point from the lowest since April 2010.
Arkema SA, a French chemicals maker, is selling 150 million euros of 10-year notes, according to a person familiar with the matter. The Colombes-based company, which is rated two levels above junk at BBB by Standard & Poor’s, is marketing the notes to yield about 120 basis points more than the benchmark mid-swap rate.