KfW led bond issuers in Europe as sales slump

March 27 | Updated: Mar 28 2005, 05:30am hrs
KfW Group, Germanys state-owned development bank, was one of the few debt issuers in Europe as concern about rising US interest rates and inflation made last week the slowest for bond sales in 2005.

Nine companies sold the equivalent of $5.4 billion of bonds in euros and pounds in Europe in the week, compared with $19.3 billion in the previous five days and $5 billion in the week leading up to the Easter break last year, according to data compiled by Bloomberg. The weekly average this year is $17.3 billion. Sales of about $208.5 billion so far this year have overtaken 2004s first-quarter total of $205 billion.

The Federal Reserve raised its benchmark rate a quarter point to 2.75% on March 22, the seventh increase in a row. The accompanying statement, which indicated policy makers are growing concerned about inflation pressures, stoked concern the Fed may step up the pace of rate increases, eroding the yield advantage of higher-risk assets such as company debt.

Investors are having to think a bit more about how to make money in this more-volatile environment, said Roger Webb, part of a team that manages the equivalent of about $50 billion of bonds at Morley Fund Management in London. Everyone has been looking at the text of the Fed statement. He didnt buy any new bonds in the week.

The average extra yield, or spread, over government bonds investors demand to buy investment-grade company debt increased by about 2.6 basis points last week to 46.16 basis points on March 24, according to Merrill Lynch & Cos EMU Corporate Index. The spread was 45.3 basis points on March 21, the day before the Fed raised US interest rates.

The index includes 1,066 securities with a par value of 805 billion euros ($1 trillion) and a market worth of 854 billion euros. They have an average final maturity of 5.69 years.

Spreads have widened 9.76 basis points from a 5 1/2-year low of 36.4 basis points reached on March 2. The widening spread means companies must pay an extra 97,600 euros relative to government debt for every 100 million euros borrowed.

Frankfurt-based KfW, Europes fourth-biggest seller of bonds after Germany, France and Italy, sold 2 billion euros of debt due June 2007 on March 22 in last weeks largest sale of securities.

Bloomberg