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BBVA Leads Debt Sales as Bank Bond Yields Hold Near Record Lows

January 03, 2013

BBVA Leads Debt Sales as Bank Bond Yields Hold Near Record Lows

Signs sit outside a Banco Bilbao Vizcaya Argentaria SA bank branch in Madrid. Photographer: Angel Navarrete/Bloomberg

Banco Bilbao Vizcaya Argentaria SA (BBVA) led banks opening bond issuance in Europe after the holiday period as the global credit rally entered a record 14th month and yields on financial debt held near record lows.

BBVA, Spain’s second-biggest lender, sold 1.5 billion euros ($2 billion) of five-year bonds, according to data compiled by Bloomberg. BNP Paribas SA (BNP), the largest French bank, and Societe Generale SA (GLE) also entered the market, helping push sales to about 6.3 billion euros, compared with last year’s daily average of 2.8 billion euros, data show.

The yield on European financial debt is 2.1 percent, according to Bank of America Merrill Lynch’s Euro Financial index, having dropped to a record 2 percent on Dec. 28. Investors are snapping up bank offerings as yields on government bonds fall, with France selling October 2022 securities today at an all-time low of 2.07 percent.

“Banks are always keen to make a start on funding, and with all the focus on liquidity in recent years, CEOs want to provide reassuring updates for current year funding when they announce full year results in a few weeks’ time,” said Roger Francis, a strategist at Mizuho International Plc in London.

BBVA will report its full-year earnings on Feb. 1, followed by BNP Paribas on Feb. 14.

The Spanish lender’s bonds were priced to yield 295 basis points more than the benchmark swaps rate after initial marketing at about 310 basis points, said people familiar with the deal, who declined to be identified. The Bilbao-based bank sold 1.5 billion euros of 4.375 percent bonds due 2015 in September that were priced to yield 380 basis points above swaps, according to data compiled by Bloomberg.

Bond Returns

Bonds sold by companies from the U.S. to Europe and Asia have returned 14.3 percent since the end of November 2011, the last month in which the debt recorded a loss, according to Bank of America Merrill Lynch index data. The longest previous stretches of gains ending in 2003, 2005 and 2009 each lasted eight months.

“We’re very pleased with the price tightening,” Erik Schotkamp, capital and funding management director at BBVA, said by telephone from Madrid. “This deal shows a group of investors from continental Europe, who didn’t previously believe Spain offered the right risk reward, are coming back.”

The deal received more than 5 billion euros of bids from more than 400 investors, Schotkamp said.

BNP Deal

BNP Paribas sold 1 billion euros of bonds due March 2018 that were priced to yield 75 basis points more than swaps, according to people familiar with the deal. Societe Generale sold 2 billion euros of two-year floating-rates notes that were priced to yield 48 basis points more than three-month Euribor.

The sales come as the cost of insuring against default on senior financial debt fell two basis points to 125, the lowest since April 2011, according to the Markit iTraxx Financial Index of credit-default swaps.

The Markit iTraxx Europe Index of contracts on 125 investment grade companies dropped four basis points to 103. The Markit iTraxx Crossover Index of swaps on 50 mostly junk rated companies, slumped 17 basis points to 422, the lowest since July 2011.

The investment-grade debt market is set to shrink this year as senior bank bond redemptions of 213 billion euros outpace sales of 140 billion euros, according to Societe Generale. That offsets net issuance by non-financial companies, which are forecast to raise 160 billion euros in 2013 and redeem 134 billion euros.

RCI Tap

Also in the market today is carmaker Renault SA’s financing unit, RCI Banque SA, which added 100 million euros to its 4.25 percent bonds due 2017. The tap was priced to yield 173 basis points above the swap rate.

The European Investment Bank sold 1 billion pounds ($1.6 billion) of five-year bonds that were priced to yield 40 basis points more than gilts, according to data compiled by Bloomberg. The German state of Lower Saxony sold 500 million euros of bonds due 2020, people familiar with the transaction said.

The relative yield to government debt for European corporate bonds is 142 basis points, approaching the lowest since April 2010, according to Bank of America Merrill Lynch’s Euro Corporate index. Corporate treasurers took advantage of record-low borrowing costs by issuing almost 294 billion euros of non-financial securities in euros and pounds last year, the most since 2009, data compiled by Bloomberg show.

“There’s only one word for it, and that’s incredible,” Suki Mann, a strategist at Societe Generale in London, wrote in a note. “We’re off to a flyer.”

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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