Company Bonds Head for Best Weekly Returns Since 2012 in Europe

Investment-grade corporate bonds are handing European investors the best returns in almost two years this week amid speculation the region’s stumbling recovery will trigger further stimulus.

Notes in euros returned 0.52 percent, the most since August 2012 and outpacing gains of 0.12 percent for junk-rated debt, according to Bloomberg bond index data. Average yields on high-grade bonds dropped nine basis points this week to a record 1.4 percent, the data show.

Companies sold more than 34 billion euros ($47 billion) of bonds this week in the busiest period of issuance since the start of the year, data compiled by Bloomberg show. The European Central Bank has signaled it may cut interest rates further, with data this week showing the euro-area grew half as much as economists had forecast in the last quarter.

“It was a stunning performance, which wasn’t really fundamentally warranted, but the market was desperate for paper and happily absorbed new supply,” said Georg Grodzki, head of credit research at Legal & General Investment Management in London. “There was growing confidence that global economic growth will be just good enough to allow corporates to preserve their ratings plus a continuation of monetary policy support, especially within the euro zone.”

The cost of insuring corporate debt is heading for the first weekly increase this month, with the Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies climbing 4 basis points to 71 basis points. The gauge reached a more than four-year low of 66 basis points on May 8.

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