Bonds of Spain’s Gas Natural SDG SA (GAS) and Telefonica SA (TEF) led corporate securities higher after the nation avoided a downgrade to junk by Moody’s Investors Service. Notes of car-maker PSA Peugeot Citroen’s banking unit rose.
Gas Natural’s 5.125 percent bonds due 2021 surged 4.4 percent, the biggest climber in Bank of America Merrill Lynch’s EMU Corporates index, while Telefonica notes due 2019 rose 2.9 percent. The cost of insuring Spain’s debt with credit-default swaps fell to the lowest in more than 14 months.
Credit markets were buoyed after Moody’s assigned a negative outlook on Spain after keeping its rating at investment grade, citing the reduced risk from the European Central Bank’s willingness to buy the nation’s bonds. The verdict stoked investor optimism the euro-region is tackling its debt crisis as European Union leaders prepare for a two-day summit tomorrow.
“Gas Natural and Telefonica are rising due to the fact that the Moody’s review has resulted in a negative outlook rather than a downgrade,” said Harold Van Acht, senior credit strategist at Kempen Capital Management NV in Amsterdam. “This positive news seems to outshine the negatives for now, leaving investors more comfortable with Spanish names.”
Spain led a drop in European sovereign credit-default swaps to the lowest since July 2011. Contracts on Spain fell 41 basis points to 278, the biggest one-day drop in a month, Bloomberg data show. A basis point on a contract covering 10 million euros ($13 million) of debt for five years equals 1,000 euros a year.
Swaps on Italy fell 27 basis points, or 10 percent, to 243, the lowest since July last year. The Markit iTraxx SovX Western Europe Index of contracts on 14 governments fell for a fifth day, declining 22 basis points to 110.
Banque PSA Finance’s 4.25 percent bonds due 2016 rose 3 percent to a four-month high of 99.8 cents on the euro. Its parent Peugeot, Europe’s second-biggest carmaker, is examining its funding options after the Le Figaro newspaper reported France may guarantee new loans for the finance unit.
Peugeot is burning cash at the rate of 200 million euros a month, posting an 819 million-euro loss for the first half as the debt crisis strangles demand for its vehicles. The carmaker is rated junk, while the bank unit has the lowest investment grade by Moody’s, which is considering a downgrade.
“Support from the French state could delay a Banque PSA ratings downgrade to high yield,” said Pierre Bergeron, a credit analyst at Societe Generale SA in Paris. “If Banque PSA is supported by the French state and French banks, this should support its bond spreads in the short term.”
Contracts insuring Peugeot’s debt against default dropped 82 basis points to 688, the lowest since Sept. 19. A decline in credit-default swaps indicates improvement in perceptions of credit quality.
Deutsche Telekom AG (DTE), Germany’s largest phone company, sold 650 million euros of 12-year bonds at yield 82 basis points more than the benchmark swap rate, according to people familiar with the deal. It’s the company’s first sale of benchmark bonds in euros since July 2010.
BNP Paribas SA (BNP) sold 1 billion euros of bonds due 2022 that were priced to yield 105 basis points more than swaps, according to data compiled by Bloomberg.
The Markit iTraxx Crossover Index of credit-default swaps linked to the debt of 50 companies with mostly high-yield credit ratings fell 21 basis points to 488, the lowest in a month. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings fell four basis points to 118.
The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers fell 13 basis points to 158 and the subordinated index fell 20 basis points to 285.
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