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Diamond’s Exit Shows Libor Only What Each Bank Says It Is

July 06, 2012

The most-traded bonds of European companies from BP Plc (BP/) to Volkswagen AG (VOW) rose to records in the biggest-ever weekly rally as central banks acted to stimulate the global economy.

BP’s 1.25 billion euros ($1.5 billion) of 2.994 percent notes due February 2019 jumped 0.87 cent on the euro, or 0.8 percent, to an all-time high of 105.9 cents, according to Bloomberg Bond Trader prices at 4:30 p.m. in London. They rose 2.4 percent on the week, the most since they were issued in February this year.

The European Central Bank cut its main refinancing rate by a quarter-percentage point to a record-low 0.75 percent yesterday, followed by a similar measure from China’s policy makers. Though ECB President Mario Draghi ruled out other measures, the cut boosted confidence that was already seen in bond markets following the decisions of political leaders at Brussels the week before about how to ease the sovereign crisis.

“There’s a lot of money out there, so there’s good demand for decent-quality paper,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “As long as investors are willing to take risk at all, people feel happier about putting their cash into a decent corporate rather than a dodgy sovereign.”


VW’s 1.25 billion euros of 2.75 percent senior, unsecured bonds due July 2015 climbed 0.29 cent to a record 104.23 cents on the euro. That contributed to a 0.6 percent jump in the past two days after the company completed the purchase of luxury sports carmaker Porsche SE. The transaction is “credit- positive for VW,” Moody’s Investors Service said today.

Investors are flocking to corporate bonds as relatively safe securities that aren’t exposed to the worst of Europe’s sovereign debt woes and still offer a yield at a time when German two-year notes are paying less than zero.

The Markit iBoxx Euro Corporates Non-Financials index rose 1.5 percent this week to 97.31, the highest in a month and the biggest weekly increase since February 2009. The gauge tracks 753 securities issued by investment-grade companies from France Telecom SA to BP and Siemens AG.

The yield premium on bonds in Bank of America Merrill Lynch’s EMU Corporates, Non-Financial Index shrank 12 basis points this week to 162 basis points relative to benchmark German government debt. That’s the biggest weekly spread tightening since the period ending Jan. 27 when the gap tightened 15 basis points.

Bayerische Motoren Werke AG (BMW)’s 1.25 billion euros of senior, unsecured 3.25 percent notes due January 2016 rose for a fifth day, climbing 31 cents on the euro to an all-time high of 106.9, according to Bloomberg Bond Trader prices. The extra yield investors demand to hold the bonds fell to 39 basis points more than the swap rate, approaching the 31 basis-point spread on May 14, the lowest since the notes were sold in January 2011.

To contact the reporter on this story: Paul Armstrong in London at

To contact the editor responsible for this story: Paul Armstrong at

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