Pimco buys European bank debt on Draghi optimism

Wellpoint, MetroPCS

“Anybody who was worried about the euro breaking up, Draghi sort of took that risk off for many people,” said Michael Shemi, a director at Christofferson, Robb & Co., a New York-based investment firm with about $1.7 billion under management. “That’s what made people say look, where can I get good current income and capital appreciation.”

Elsewhere in credit markets, Wellpoint Inc., the biggest U.S. health insurer behind UnitedHealth Group Inc., sold its first convertible securities in more than 13 years with a $1.35 billion offering of 30-year bonds. MetroPCS Communications Inc. bonds rose to a record after Deutsche Telekom AG said it would combine the company with its T-Mobile USA unit.

The U.S. two-year interest-rate swap spread, a measure of debt-market stress, fell for the fourth time in five days, declining 1.44 basis points to 13.06 basis points. The gauge, which reached a more than two-year low of 12.31 on Sept. 14, narrows when investors favor assets such as company debentures and widens when they seek the perceived safety of government securities.

Credit Swaps

The Markit CDX North America Investment-Grade index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell to the lowest in more than a week, dropping 1.7 basis points to 96.6 basis points, according to prices compiled by Bloomberg.

In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 3.3 to 129.

Both indexes typically fall as investor confidence improves and rise as it deteriorates. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million.

Bonds of Banco do Brasil SA, Latin America’s largest lender by assets, were the most actively traded dollar-denominated corporate securities by dealers today, with 124 trades of $1 million or more as of 11:52 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Record Offering

The Brasilia-based bank sold a record $1.75 billion of 10- year bonds yesterday, eclipsing previous offerings of $1.5 billion in 2011 and 2009, data compiled by Bloomberg show. The new debt climbed 1 cent from the issue price to 99.95 cents on the dollar to yield 3.9 percent at 11:34 a.m. in New York, Trace data show.

Wellpoint, the operator of the Blue Cross and Blue Shield insurance plans issued 2.75 percent debt with a conversion price of $75.57 per share, according to data compiled by Bloomberg. The shares traded at $60.45 at 11:46 a.m. in New York.

MetroPCS’s $1 billion of 6.625 percent notes due November 2020 rose 1.1 cents to 110.1 cents on the dollar to yield 5.1 percent at 11:06 a.m. in New York, Trace data show. The bonds traded as high as 111.6 cents, compared with 105.6 on Oct. 1, the day before Bloomberg News first reported discussions between the companies.

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