Banco Santander SA (SAN) and Intesa Sanpaolo SpA (ISP) led bond issuance from Europe’s peripheral lenders even as the cost of default insurance on the region’s financial debt climbed for a seventh day.
The Markit iTraxx Financial index of credit-default swaps linked to 25 banks and insurers rose three basis points to 137 at 11:50 a.m. in London, the highest since Jan. 1. German cable operator Unitymedia, a unit of Liberty Global Inc. (LBTYA:US), is also in the market with a high-yield note offering.
The extra yield investors demand to hold financial company bonds compared with government debt fell to 159 basis points on Jan. 14, the lowest since February 2008, Bank of America Merrill Lynch’s Euro Financials index shows. Bond issuance from Europe’s periphery totaled 6.3 billion euros ($8.4 billion) last week, the busiest period since Oct. 7, according to data compiled by Bloomberg.
“Conditions are fairly strong for peripheral banks, and many investors have a sense that they need to buy into what is offered,” said Joseph Faith, a credit strategist at Citigroup Inc. in London. “It’s going to be much harder to generate returns in 2013 than in 2012, with spreads pretty tight already.”
Santander, Spain’s biggest lender, is selling 1 billion euros of bonds due 2020 that will be priced to yield 275 basis points more than the mid-swap rate, according to people familiar with the sale. It’s the Madrid-based bank’s first note issue of the year.
Santander’s debt was among the biggest decliners in Bank of America Merill Lynch’s Euro Corporate index. The bank’s 4.75 percent bonds due 2019 dropped 1.5 percent to 86.4 cents on the euro, the lowest since Jan. 3, according to data compiled by Bloomberg.
Intesa Sanpaolo, Italy’s second-largest lender, is raising 1 billion euros from covered bonds due 2025 that will yield 150 basis points more than swaps, people familiar with the transaction said. The Turin-based bank raised $3.5 billion from bonds last week, with its first benchmark sale in the U.S. in almost two years.
Banca Popolare, Italy’s oldest cooperative bank, is also selling 750 million euros of three-year notes that will be priced to yield 360 basis points more than the benchmark mid- swap rate.
Unitymedia Hessen GmbH & Co. KG and Unitymedia NRW GmbH are selling 10-year bonds in euros with a five-year call date.
Bonds of Faurecia (EO) SA, Europe’s biggest maker of car interiors, were the biggest fallers in Bank of America Merrill Lynch’s Euro Non-Financial High-Yield Index after the company said debt exceeded forecasts as auto production in the region contracted. The company is 57 percent-owned by PSA Peugeot Citroen.
The Nanterre, France-based company’s 3.75 percent bonds due 2019 dropped 1.9 percent to a two-week low of 107.76 cents on the euro.
Volkswagen AG (VOW) is holding an investor roadshow for a sale of 953 million euros of bonds backed by German car loans. Europe’s largest carmaker sold the region’s first corporate bonds of the new year last week and was the biggest issuer of debt in 2012, according to data compiled by Bloomberg.
Telekom Austria AG (TKA) is also meeting investors before a possible sale of undated subordinated hybrid bonds in euros. The Vienna-based company, which is part-owned by Carlos Slim’s America Movil SAB, is considering raising funds to help finance the acquisition of new mobile spectrum in Austria.
In credit derivative markets, the cost of insuring against default on junk-rated European companies climbed for a third day. The Markit iTraxx Crossover Index of credit-default swaps jumped 6 basis points to 437. The Markit iTraxx Europe Index of contracts on 125 investment grade companies was little changed at 106 basis points.
A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps 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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