Telefonica Leads Corporate Bond Rush Amid Record Low Yields
Telefonica SA (TEF), Spain’s biggest phone company, and France Telecom SA took advantage of record-low relative yields to sell bonds in euros, spurring the busiest week for corporate fundraising since March.
Telefonica offered 750 million euros ($941 million) of five-year bonds in its first deal in the currency since February, according to data compiled by Bloomberg. A total 16.7 billion euros has been raised so far this week, the most since the period ending March 18, when companies borrowed 21.4 billion euros, data show.
Borrowing costs are tumbling with average yields on investment-grade securities dropping to 2.58 percent, Bank of America Merrill Lynch’s EMU Corporate Index shows, compared with 4.4 percent at the start of the year. The rush of issuance comes before tomorrow’s European Central Bank meeting when President Mario Draghi is expected to flesh out plans for sovereign bond- buying to ease the region’s debt crisis.
“If the ECB doesn’t announce some details or the plan is delayed we could see some disappointment and yields back up, which would deter further issuance,” said Chris Iggo, London- based chief investment officer for fixed income at Axa Investment Managers. “However, I suspect that this would only be temporary as there is a huge amount of cash needing to be invested, which is why issues are going well even at these low yields.”
Madrid-based Telefonica’s bonds will be priced to yield 485 basis points more than the benchmark swap rate, according to a person with knowledge of the sale, who didn’t want to be identified. The securities were originally marketed with a spread of about 510 basis points, the person said.
France Telecom (FTE)’s 500 million euros of bonds due March 2023 were priced to yield 80 basis points more than swaps, data compiled by Bloomberg show. That compares with an 84 basis- point spread on its existing 1 billion euros of 3 percent notes due June 2022.
Other deals today include German telecommunication company Unitymedia Hessen’s 650 million-euro sale of high-yield bonds, which was increased from an initial size of 400 million euros, and a 350 million-pound ($556 million) offering from Scottish Power Ltd.
“There’s a lot of issuance for opportunistic reasons given financing is very cheap,” said Oliver Woyda, a money manager at Deka Investment GmbH in Frankfurt. “The peripheral companies have started issuance as well, even thou it’s still expensive for them. These companies are fearing that markets might be closed for them suddenly if Draghi doesn’t deliver.”
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