Bond Sales Slow Amid Climbing Credit Risk in Europe on Stimulus

June 17, 2013 Leave a comment

Bond Sales Slow Amid Climbing Credit Risk in Europe on Stimulus

Sales of corporate bonds in Europe fell to the lowest in two months this week as the cost of insuring the debt against losses rose with investors anticipating a withdrawal of central banks’ stimulus measures.

Coca-Cola HBC AG (CCH), the world’s second-biggest bottler of the soft drink, and Rolls-Royce Holdings Plc (RR/), Europe’s largest maker of aircraft engines, led companies selling 6.3 billion euros ($8.4 billion) of bonds, down from 12.3 billion euros last week and the least since the week ending April 6, according to data compiled by Bloomberg. The Markit iTraxx Europe Index of credit-default swaps protecting against losses on 125 investment-grade borrowers was up four basis points on the week to 108.

Credit investors are concerned the U.S. Federal Reserve will trim its bond-buying program if it sees sustained employment growth, restricting support that has kept borrowing costs near record lows. Bank of Japan policy makers decided not to take additional steps to spur growth or extend the maturity of bank loan facilities earlier this week.“Appetite for risk has declined substantially for now and for this reason we saw only a few new deals this week,” said Oliver Woyda, a money manager at Deka Investment GmbH in Frankfurt, which oversees about 20 billion euros. “Speculation around the Fed cutting stimulus is the most important trigger.”

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly junk credit ratings rose 14 basis points this week to 449.

Rate Increase

The index was 22 basis points lower today after the Wall Street Journal said Fed officials are likely to push back on expectations of a rate increase and an adjustment in their $85 billion a month bond-buying program won’t mean it will end all at once.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers, which dropped 7.75 basis points today, is up six basis points on the week at 157.

A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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