“In the old order, sovereigns were tighter than corporates,” Greg Venizelos, a credit strategist in London at BNP Paribas SA, told Bloomberg. “There’s been a repricing and corporates are now better credit quality than sovereigns in the periphery.”
According to the news service, 33 companies in an index of credit-default swap prices are less risky than governments, including six each in Spain and Italy. The index of 125 European companies dropped last week to a record 76 basis points lower than an index of sovereigns from Greece to Germany.
Credit-default swaps, which investors use to insure against losses or speculate on creditworthiness, show how non-financial companies have shrugged off the worst effects of the budget-deficit crisis that has roiled nations. Bloomberg says companies with diversified or stable revenue and strong balance sheets have become the new havens amid concern that Europe’s so-called peripheral countries will need bailouts.
Government bonds are also tumbling on concern European nations will struggle to reduce budget deficits and as politicians debate whether a new mechanism to handle future crises should force investors to share losses. Irish Central Bank Governor Patrick Honohan said last week that loan losses at the country’s banks, including foreign-owned lenders, total at least 85 billion euros.
Bloomberg notes Irish 10-year government bonds fell for 13 straight days before recovering on Nov. 12 and also climbing today. The difference between Irish yields and benchmark German rates widened to a record 652 on Nov. 11, before narrowing, while the Portuguese-German spread expanded to an all-time high of 484 basis points on Nov. 11.
The yield gaps compare with the record 973 basis-point premium on Greek 10-year notes on May 7, before the European Union crafted a 750 billion-euro rescue package for the nation.