Deere & Co. (DE:US) sold its first euro-denominated bonds in two years and Vivendi SA (VIV) issued its first securities in eight months as yields on European corporate debt fell to the lowest in almost three weeks.
The world’s largest agricultural-equipment maker issued 300 million euros ($386 million) of five-year notes, while Vivendi, the Paris-based media-to-telecommunications company, sold 750 million euros of securities, according to data compiled by Bloomberg. Continental AG (CON) and Fiat SpA (F) are also selling bonds in the single currency.
Companies in Europe are returning to credit markets after the European Central Bank and the Bank of England signaled they will keep interest rates low for the foreseeable future. The yield investors demand to hold investment-grade bonds fell to 2.07 percent, the lowest since June 19, while the average rate on junk-rated notes dropped to a 2 1/2-week low of 6.02 percent, according to Bank of America Merrill Lynch index data.
“The market hasn’t been particularly prolific over the past few weeks or so and now that we are heading into the summer period borrowers want to get some deals away,” said Suki Mann, a London-based strategist at Societe Generale SA. Companies may want to issue sooner rather than later on concern that yields will climb, he said.
The proceeds of Vivendi’s notes due January 2019 will be used to help refinance bonds maturing next year, said a person familiar with the sale.
In the high-yield market, Continental, Europe’s second-biggest auto-parts supplier, sold 750 million euros of bonds to yield 3.25 percent, according to a person familiar with the offering. The five-year bonds will help finance the early redemption of higher interest debt, the company said in a statement yesterday.
Fiat, based in Turin, is marketing 850 million euros of notes due October 2019 that will yield 6.75 percent, a person familiar with the matter said.
Amplifon SpA (AMP), the world’s largest hearing-aid distributor, raised 275 million euros from five-year bonds that were priced to yield 5 percent. It was the Milan-based company’s first bond sale in the currency, according to data compiled by Bloomberg.
“There’s a better market backdrop which is helping these deals to get printed today,” said Umang Vithlani, head of credit at Fideuram Asset Management in Dublin, which oversees 3 billion euros. “But next week or even later this week, the market could turn again. It is a volatile period and the market is sentiment-driven week to week.”
The cost of insuring European corporate debt against default fell to the lowest in more than a month. The Markit iTraxx Crossover Index of default swaps on 50 companies with high-yield credit ratings fell 8 basis points to 434 basis points at 3:27 p.m. in London, the lowest level since June 4.
The Markit iTraxx Europe Index of contracts on 125 investment-grade companies dropped four basis points to 107 basis points, the lowest since June 10.
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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