By Ben Edwards
The European primary bond market remained muted Friday with just
one benchmark-size deal sold, capping a barren week disrupted by
public holidays and mounting fears about the ailing Spanish banking
sector.
Supranational borrower the European Investment Bank, or EIB,
sold a one billion euro ($1.26 billion) tap of its 4% bond due to
mature April 2030.
The tap priced at 98 basis points over midswaps, taking the
total amount of the bond outstanding to EUR6.5 billion, according
to Tradeweb.
Benchmark bonds are typically sized EUR500 million or above.
The deal follows a EUR1.5 billion tap from French social
security debt management agency Caisse d'Amortissement de la Dette
Sociale, or CADES, Wednesday.
Corporate issuers have mostly remained sidelined this week, with
no benchmark-size deals sold yet in June. Dutch gas and power
operator Alliander came close with a EUR400 million, 12-year bond
Wednesday.
Concerns about a potentially messy Greek exit from the euro zone
and the ongoing rumblings about the ill health of the Spanish
banking sector have pushed corporate borrowing costs in the region
higher, with the iBoxx European Corporate Bond index moving 19
basis points wider since the start of May to 206 basis points at
Thursday's close, according to data-provider Markit.
The prospect of higher borrowing costs will likely deter
opportunistic issuers from tapping the public bond markets, though
a modest pipeline is developing with a handful of roadshows
scheduled next week.
German companies are leading the way, with aircraft engine-maker
MTU Aero Engines Holding AG (MTUAY) and unrated
pharmaceutical-retailer Celesio AG (CLS1.XE) planning to meet with
investors in Europe from Monday 11, and mail-services group
Deutsche Post (DPSGY) from Thursday 14.
U.K. gas company BG Energy is likely to conclude roadshowing its
proposed hybrid bond to investors in Europe and Asia next week.
Also in the U.K., Network Rail said it plans to tap one or more
of its existing sterling-denominated, inflation-linked bonds in the
coming weeks, subject to market conditions.
Sentiment slumped Friday following Fitch Ratings' three-notch
downgrade of Spain to BBB from A. The cost of insuring European
corporate debt pushed higher in response, with Spanish banks taking
a notable hit. Five-year credit default swaps on Banco Santander
(STD) moved 14 basis points wider to 418 basis points, while BBVA
(BBVA) was 15 basis points wider at 458 basis points--just two
basis points off its record wide hit back in November, Markit
said.
Credit default swaps are derivatives that function like an
insurance contract for debt. If a borrower defaults, sellers
compensate buyers.
At around 1130 GMT, the iTraxx Europe index, which comprises 125
high-grade borrowers, 25 of which are banks and insurers, was
almost three basis points wider at 175.5 basis points, Markit
said.
The Crossover index of 40 mostly sub-investment-grade European
corporate borrowers was six basis points wider at 703 basis
points.
Write to Ben Edwards at ben.edwards@dowjones.com