By Caroline Hyde
Aug. 7 (Bloomberg) -- Demand for corporate bonds outstripped supply in Europe this week, driving the yield premium that investors demand to hold the debt instead of government securities to the lowest since Sept. 15.
“We’ve seen unprecedented inflows into the asset class, leading spreads to scream in,” said Robin Stoole, head of bond syndicate at Lloyds TSB Corporate Markets in London. “With many companies already well funded, the demand-supply imbalance is likely to remain in the second half of 2009, meaning the credit rally still has legs.”
New issues in Europe broke through the all-time high of $1.1 trillion set for the whole of 2007, as companies turned to the bond market after the credit crunch prompted banks to freeze lending to all but their best customers. Buyers were lured by the best returns since at least 1998, with investment-grade notes in euros handing bondholders 10.2 percent year-to-date, according to Merrill Lynch data.
The spread on investment-grade notes dropped 6 basis points to 2.15 percentage points, down from a record 4.63 percentage points in March, Merrill Lynch & Co.’s EMU Corporate Index shows.
Barclays Plc led 7.6 billion euros ($11 billion) of bond sales, compared with the 20 billion-euro weekly average, according to data compiled by Bloomberg.
The U.K.’s second-biggest bank raised 2 billion euros of debt priced at a spread of 153.1 basis points over similar- maturity German government debt. The 4.875 percent notes are due August 2019. A basis point is 0.01 percentage point.
The London-based lender last completed a benchmark issue in the common currency in May when it sold 3 billion euros of five- year debt with a spread of 288.4 basis points.
EADS New Issue
European Aeronautic Defence and Space Co. NV sold 1 billion euros of bonds due August 2016 at a spread of 167 basis points over government debt, Bloomberg data show. The issue was nine times subscribed within 40 minutes, according to the Paris- and Munich-based owner of Airbus SAS.
The company’s 4.625 percent notes jumped 1.4 percent in the first day of trading, with the spread dropping 33 basis points, according to ING Groep NV prices on Bloomberg.
“This is a great time to get funding away given there is little competing supply,” said Suki Mann, a London-based credit strategist at Societe Generale SA.
Dexia Credit Local, a unit of the world’s largest lender to local governments, also sold debt, adding 300 million euros to its existing 5.375 percent bonds due July 2014, according to Bloomberg data. The additional bonds were priced at a spread of 187.5 basis points, almost half the premium paid when it originally issued 1 billion euros of the notes in July.
To contact the reporter on this story: Caroline Hyde in Londonchyde3@bloomberg.net.
