UniCredit SpA and BNP Paribas SA (BNP) are among banks fueling a surge of bond issuance in Europe as the cost of insuring debt against losses fell to the lowest in almost four years.
Italy’s biggest bank is selling 1.25 billion euros ($1.7 billion) of seven-year bonds while France’s largest lender is also marketing notes due January 2021, according to people familiar with the deals. The Markit iTraxx Senior Financial index of credit-default swaps on 25 European banks and insurers fell one basis point to 81 basis points, the lowest since March 2010.
Abbey National Treasury Services Plc, Lloyds Banking Group Plc (LLOY) and Nordea Bank AB (NDA)’s Finnish unit are also in the market as sales pick up after the holiday period and as borrowing costs declined.
The average yield on euro bonds from financial companies dropped 3.5 basis points to 2.09 percent, the lowest in more than a month, Bank of America Merrill Lynch index data show.
“Bond supply has started in earnest in 2014 in financials,” said Jeroen van den Broek, a strategist at ING Bank NV in Amsterdam. “Borrowers know that rates are low at the moment and there’s a lot of demand out there. It’s almost a perfect scenario so what’s the upside in waiting?”
UniCredit’s notes will be priced to yield 170 basis points more than the benchmark mid-swap rate, according to the person familiar with the situation. The bank is raising the debt as part of a funding plan and due to “the strong market backdrop,” Waleed El-Amir, the bank’s Milan-based head of strategic funding, said in an e-mailed statement. “Funds are for general corporate purposes.”
Petroleo Brasileiro is leading bond sales from non-financial companies. Latin America’s biggest oil producer by market value is issuing euro notes maturing in four, seven, and 11 years as well as 20-year bonds in pounds, a person familiar with the sale said.
“Today is the first proper full day of the year and the environment should be good for issuance,” said Nick Burns, a credit strategist at Deutsche Bank AG in London. “Credit spreads have been tightening and the tone has been constructive in the first few days of this year.”
The extra yield investors demand to hold investment-grade corporate bonds in euros instead of government debt fell three basis points in the past week to 114 basis points, the narrowest spread since May 30, according to Bank of America Merrill Lynch index data