Floating-Rate Bonds See Busiest June Since 2012 on Safety DemandSelcuk Gokoluk
Floating-rate corporate-bond sales had their busiest June since 2012 as investors sought assets that are insulated against rising borrowing costs.
Companies including financial firms issued 18 billion euros ($20 billion) of the notes, up 6 percent on the period last year, according to data compiled by Bloomberg.
Investors are buying floating-rate notes because they pay interest over benchmarks, such as bank lending rates, whether they rise or fall. That’s made them more attractive than fixed-rate bonds, whose value has been eroded by a global selloff in sovereign debt that sent borrowing costs up from record lows.
“The shift to a rising-rate environment has taken many credit investors by surprise,” said Jeroen Van Den Broek, the head of developed markets credit strategy and research at ING Bank NV in Amsterdam. “If you are expecting rising rates, then you are happier to buy floaters.”
Sales of floating-rate notes began catching up with those of fixed-rate bonds, traditionally a bigger market, which dropped 50 percent in June on the previous year to 36 billion euros. That was the closest issuance of the two asset classes have come in any June, according to data going back to 2009.
The rate on 10-year German bunds, the benchmark for euro-area debt, surged from 0.049 percent in April to a nine-month high of 1.06 percent as the selloff wiped more than 400 billion euros off European debt markets.
Issuance of floating- and fixed-rate bonds stalled this week as Greek debt talks failed. Sales of both types of notes declined in June compared with the previous month.
Archer-Daniels-Midland Co., the world’s largest corn producer, and Cap Gemini SA, were among companies that sold notes tied to the benchmark euro interbank offered rate. Three-month Euribor fell below zero for the first time in April and was at minus 0.016 percent on Monday, the lowest on record, according to the European Money Markets Institute.
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