AT&T Inc. (T:US), the largest U.S. telephone operator, and Italian lottery company Lottomatica Group SpA tapped bond markets even as credit risk rose on concerns about the progress of U.S. budget talks.
AT&T sold its first bonds in euros since April 2008, while Lottomatica’s offering of benchmark notes came after a two-year issuance hiatus, according to data compiled by Bloomberg. The cost to insure corporate debt with credit-default swaps rose, touching a one-week high in earlier trading.
Bond risk eased as U.S. Speaker of the House John Boehner said he’s “optimistic” budget talks will continue, after Erskine Bowles, co-chairman of President Barack Obama’s 2010 fiscal commission, said it was unlikely a deal will be struck by year end. The concerns haven’t dissuaded borrowers taking advantage of record-low yields and companies raised 2.6 billion euros ($3.4 billion) from sales of unsecured bonds today.
“Investors are awash with cash and need to put it somewhere, so even with this backdrop there’s a huge amount of appetite,” said Jonathan Pitkanen, the London-based head of credit research at Threadneedle Asset Management Ltd.
Corporate bond yields have plunged to 2.2 percent from 4.4 percent at the start of the year, according to Bank of America Merrill Lynch’s EMU Corporate Index. The premium to the benchmark German government debt has narrowed 161 basis points, or 1.61 percentage points, to 150 basis points since the end of December.
AT&T in Dallas raised 1 billion euros from eight-year bonds that were priced to yield 60 basis points more than the benchmark swap rate, or about 2 percent, data compiled by Bloomberg show.
Lottomatica sold 500 million euros from notes due March 2020. The securities for the Rome-based company, rated Ba2 by Moody’s Investors Service and BBB- at Standard & Poor’s, were priced at a spread of 235 basis points more than the swap rate.
Finmeccanica SpA (FNC), the Italian defense contractor whose bonds were the best performers in this year’s European credit rally, offered 600 million euros of five-year notes in its first debt issue in three years. The Rome-based company’s bonds were priced at a spread of 365 basis points.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings rose eight basis points to 508 at 4:50 p.m. in London. The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings climbed two basis points to 125.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased three basis points to 165 and the subordinated index climbed two to 286.
A basis point on swaps contract a protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. The derivatives pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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