Goldman Sachs Group Inc. (GS:US) raised 1 billion euros ($1.3 billion) from its first benchmark sale in the currency for 1 1/2 years, just a week after issuing $6 billion of debt in its biggest deal ever.
The U.S. bank sold 3.25 percent senior, unsecured 10-year notes that were priced to yield 155 basis points more than the swap rate, according to data compiled by Bloomberg. The deal lifts total corporate bond sales in Europe this week to about 19 billion euros, matching the previous week’s volume.
Goldman Sachs is borrowing money as the European Central Bank said today that banks will hand back more of its three-year emergency loans than forecast by economists in a Bloomberg News survey. That boosted investor confidence and helped send the cost of insuring bank debt down from near a four-week high.
“There’s still strong demand for financial debt in Europe,” said Georg Grodzki, the head of credit research at Legal & General Investment Management in London, which manages more than $600 billion of bonds. “Yields may be heading up soon and fast if Goldman Sachs’s own economic optimism proves correct” and interest rates rise, he said.
Sophie Bullock, a spokeswoman for Goldman Sachs in London, declined to comment.
The New York-based firm is rated (GS:US) A3 by Moody’s Investors Service, four levels above junk status, and an equivalent A- by Standard & Poor’s.
Lenders including Intesa SanPaolo SpA (ISP) and UniCredit Bank Austria AG also took advantage of low borrowing costs and raised a total of 12.8 billion euros this week, Bloomberg data show. Spanish technology company Abengoa SA (ABG) sold 250 million euros of five-year junk bonds today that pay an 8.875 percent coupon, which was at the low end of the marketing range, a person with knowledge of the transaction said.
About 278 financial institutions will return 137.2 billion euros to the Frankfurt-based ECB on Jan. 30, compared with the median forecast of 84 billion euros in a Bloomberg economists’ survey. The ECB’s first three-year loan totaled 489 billion euros and banks can continue to make early repayments in coming weeks.
Futures traders wagered that interbank borrowing costs will rise after the ECB’s announcement. The yield on the futures contract due December 2013 for the euro interbank offered rate, or Euribor, climbed 12 basis points to 0.54 percent as of 4:52 p.m. in London. The price, which moves inversely to the yield, dropped to the lowest since July.
Three-month Euribor, which is set daily from submissions by a panel of banks and is designed to reflect their borrowing costs, was set at 0.214 percent today, down from 0.663 percent in June and a record-high 5.393 percent in October 2008.
The Markit iTraxx Financial Index of credit-default swaps dropped as much as three basis points to 134 before paring its decline to one basis point. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell one basis point to 105, snapping three days of increases.
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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