Banks led by Spain’s Banco Santander SA (SAN) and Paris-based Societe Generale SA (GLE) in France dominated bond sales in Europe this week as the cost of insuring financial debt rose.
Corporate issuance totaled 14.9 billion euros ($19.9 billion) this week, 20 percent more than the average for the past year, according to data compiled by Bloomberg. Banks accounted for 8.2 billion euros of sales, with Santander and SocGen each selling 1 billion euros of securities as bank borrowing costs fell to a five-year low.
The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 banks and insurers rose for a second week, up one basis points to 133 at 1 p.m. in London. The index, which rises as perceptions of credit quality worsen, dropped to the lowest level since April 2011 on Jan. 7.
“We’ve had a lot of paper issued and it’s been soaked up in a reasonably effective way despite markets consolidating after a fairly big rally,” said Roger Francis, an analyst at Mizuho International Plc in London.
The extra yield investors demand to hold bank bonds instead of benchmark German government debt fell one basis point this week to 159 basis points, the smallest gap since Feb. 11, 2008, Bank of America Merrill Lynch’s Euro Financials index shows.
Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings rose three basis points to 422. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was little changed at 103 basis points.
A basis point on a credit-default swap 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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