Volkswagen AG is selling Europe's first corporate bonds of the new year as company borrowing costs relative to government debt fell to the lowest since April 2008.
The German carmaker was the region's biggest issuer of debt last year, selling 9.8 billion euros ($12.8 billion) of bonds, and it has 6.5 billion euros of notes maturing this year, according to data compiled by Bloomberg.
The relative yield on European corporate bonds over government debt has fallen to 137 basis points, according to Bank of America Merrill Lynch's Euro Corporate index, compared with 301 basis points at the start of 2012. The new issuance market has been dominated by banks so far this year and UniCredit SpA was in the market today with a 1 billion-euro covered bond deal.
“Given the strength of the market, Volkswagen is kicking the ball early and issuing with tight pricing,” said Geraud Charpin, a fund manager at Bluebay Asset Management Ltd. in London, which oversees $47 billion. “Autos are regular issuers so they have lots to do over the year, and the market is favorable.”
Europe's biggest carmaker is offering 1 billion euros of seven-year bonds that will be priced to yield 78 basis points more than the mid-swap rate, according to people familiar with the transaction. Marco Dalan, a spokesman for Volkswagen, said the funds will be used to refinance existing borrowings.
In credit derivative markets, the cost of insuring European bank debt fell to the lowest since April 2011 after central bank officials agreed to delay a liquidity rule that could have strangled interbank lending. Credit-default swaps linked to UniCredit and Societe Generale SA were the best-performing in the Markit iTraxx Europe index linked to 125 investment-grade companies.
Lenders will be allowed to use an expanded range of assets including some equities and securitized mortgage debt to meet the so-called liquidity coverage ratio, or LCR, after a deal was struck by regulators meeting in Basel, Switzerland yesterday.
UniCredit, Italy's biggest bank, is offering seven-year covered bonds that will be priced to yield 150 basis points more than swaps. It's the Milan-based bank's first covered bond transaction in euros since August, data compiled by Bloomberg show.
Default swaps on the lender dropped 14 basis points to 266 and contracts on SocGen declined seven to 156, both the lowest since July 2011, according to data compiled by Bloomberg at 10:51 a.m. in London.
The Markit iTraxx Financial index linked to swaps of 25 banks and insurers dropped three basis points to 122.5, and is down from 278 basis points at the start of last year. The Markit iTraxx Europe index was little changed at 104 basis points.
Abbey National Treasury Services Plc, a unit of Banco Santander SA, is also selling bonds today due 2018, its first deal in euros since February, according to data compiled by Bloomberg. The benchmark notes will be priced to yield 97 basis points more than the mid-swap rate, according to bankers.
Bloomberg News
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