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The cost of insuring the debt of Europe’s riskiest companies against default has soared to the highest levels in 18 months as investor alarm rises in response to Donald Trump’s tariffs.
The spread on the iTraxx Crossover index, which measures the cost to insure junk-rated companies against defaults, has surged 93 basis points to 421bp since April 2. This means it costs €421,000 a year to insure €10mn of debt over five years.
The widely followed index, which tracks the credit-default swaps of 75 companies in Europe such as carmaker Jaguar Land Rover and French telecoms group Iliad, reflects growing fears about their health.
Fund managers said that the sharp rise in the index, used to hedge against market moves in lower-rated debt, had not translated to disorderly or large sales of junk bonds.
“The weaker structures are struggling,” said one high-yield bond investor, who added that the selling “isn’t panicked . . . it’s more of a steady repricing”.
However, higher-rated companies are coming under pressure, too. The spread of the iTraxx Europe index, which tracks 125 investment grade groups such as Heineken and UK retailer Marks and Spencer, has also risen to its highest levels in 18 months, although at a slower pace. It has risen by 20bp to 83bp since April 2.
The market for new debt issuance by riskier European companies has stalled as investors sit on the sidelines in volatile conditions.
New issuance in the space had “ground to a halt”, said one high-yield bond investor, while another credit investor said that “primary bond land is closed”.
A number of credit investors described the €2.2bn loan deal backing Bain Capital’s acquisition of facility management company Apleona as the only live leveraged finance deal in Europe.
A group of banks running the debt deal — Citigroup, Deutsche Bank and UBS — on Wednesday had to offer higher interest rates to potential investors to compensate for the market turmoil.
The three banks began marketing the junk-rated loan deal on March 31, before US President Donald Trump unveiled steep tariffs on imports that roiled global markets.
Bain announced it had agreed to acquire Apleona from rival private equity firm PAI in February.
Fitch said on Wednesday that adding “blanket US tariffs on imports . . . will increase pressure on corporate issuers without leverage headroom”.
The rating agency added that the impact on automotive, technology hardware and chemicals companies would be “particularly acute”.
The cost of insuring against debt defaults in Europe’s car industry soared at the beginning of this week.
The cost of insuring Volkswagen’s debt against default in the next five years rose by 30bp to 154bp — the highest level since the Covid-19 pandemic — between Friday and Monday.
European companies exposed to a potential influx of cheap Chinese goods have also been hit particularly hard as investors anticipate retaliatory measures from the world’s second-largest economy.
Spreads on the bonds of Amara NZero, a supplier of renewable products used for solar, wind and hydro power, and PVC manufacturer Kem One continued to rise on Wednesday.
