The cost of protecting bank bonds against losses dropped to the lowest in three years in Europe before the Federal Reserve’s policy announcement.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell 1 basis point to 117 basis points at 10:40 a.m. in London, the lowest since October 2010. Default swaps on subordinated bank debt also declined to a three-year low, dropping 2 basis points to 175 basis points.
Economists expect the Fed will keep its $85 billion in monthly bond purchases today, even as BlackRock Inc. Chief Executive Officer Laurence D. Fink warned stimulus is contributing to “bubble-like markets.” Spain’s exit from a two-year recession in the third quarter helped boost investor confidence.
“Tapering expectations continue to be pushed to a later date, perhaps March next year,” said Juan Esteban Valencia, a Paris-based credit strategist at Societe Generale SA. “We’ll look for clues in today’s Fed meeting, but if ongoing liquidity conditions remain as expected, that’s positive and compounded by the fact there’s no major macro threat at the moment with the sovereign crisis contained.”
The average yield investors demand to hold euro-denominated bonds from financial companies fell 14 basis points this month to 2.1 percent, the lowest since June 5, according to Bank of America Merrill Lynch index data.
Contracts on non-financial corporate bonds held at a 3 1/2-year low, with the Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings unchanged at 83 basis points.
In the new issue market today, Coca-Cola Enterprises Inc. (CCE:US), the third-largest independent bottler of the soft drink, is selling 350 million euros ($482 million) of 10-year notes to yield about 70 basis points more than the mid-swap rate, according to a person familiar with the matter. The Atlanta-based company may use the proceeds to refinance commercial paper and debt, the person said.
Iberdrola SA (IBE), Spain’s biggest utility, is planning to sell 500 million euros of bonds maturing in January 2022 at a spread of about 150 basis points, according to another person.
Daimler AG (DAI), the world’s third-biggest luxury automaker, is seeking to raise 250 million pounds ($402 million) from four-year notes yielding about 95 basis points more than U.K. government bonds with a similar maturity.
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