By Tim Catts and Pierre Paulden May 12 (Bloomberg) -- Europe’s sovereign debt crisis is punishing corporate borrowers, with bond issuance tumbling as investors doubt a $1 trillion bailout plan will be enough to bolster confidence in government finances for the region. Borrowers worldwide have sold $15 billion of corporate debt this month, a 62 percent decline from the same period in April and 83 percent less than the average for the past year, according to data compiled by Bloomberg. The extra yield investors demand to own corporate debt instead of government bonds soared last week to the highest in more than four months. While a finance package hammered out over the weekend by European leaders slowed the decline in the euro and spared Greece from defaulting, investors aren’t showing they’re convinced a 13-month credit-market rally is poised to resume. Corporate bonds have lost 0.47 percent in May, the worst start to a month since February, according to Bank of America Merrill Lynch index data. “This is a fix and not a resolution,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, who helps manage $8 billion in fixed-income assets. “Investors have seen volatility and that makes it harder to get excited about longer-dated assets paying a fixed return.” Federal Reserve Chairman Ben S. Bernanke told U.S. senators yesterday the euro region’s aid package isn’t a cure-all, said Alabama Senator Richard Shelby, the senior Republican on the Banking Committee. ‘Not a Panacea’ “He said, ‘This is basically not a panacea,’” and that the measures are “temporary,” Shelby told reporters in Washington after a closed-door briefing. “There’s got to be fundamental underlying changes in their economies, not just Greece, but a lot of other countries,” Shelby cited Bernanke as saying. Elsewhere in credit markets, a rise in the London interbank offered rate, a borrowing benchmark, indicated banks are more reluctant to lend to each other. Three-month Libor rose 2 basis points, or 0.02 percentage point, to 42.3 basis points, after declining 7 basis points May 10. Banks in the euro area borrowed 3.83 billion euros ($4.8 billion) from the European Central Bank’s marginal loan facility, the most since March 10, ECB data shows, while the amount of overnight deposits held at the central bank increased to 314.8 billion euros two days ago, the highest since July. Volvo Sale Volvo AB sold $616 million of bonds backed by loans on trucks and construction equipment at a tighter relative yield than planned. The largest top-rated portion of debt from Gothenburg, Sweden-based Volvo yields 55 basis points more than the benchmark interest rate. It was originally marketed at a spread of 65 basis points. Tokyo-based Honda Motor Co., through a finance arm, plans to sell $1 billion of bonds backed by auto loans as soon as today. The automaker last sold similar debt on Feb. 18, according to data compiled by Bloomberg. The Federal Deposit Insurance Corp. advanced a proposal aimed at overhauling part of the $4 trillion asset-backed securities market. The FDIC board voted 3-2 yesterday to seek comment on a measure requiring sellers of securitized loans to keep 5 percent of the credit risk in exchange for safe-harbor protection that makes the bonds more attractive to investors. The proposal aims to bolster a market whose collapse helped trigger the 2008 financial crisis, FDIC Chairman Sheila Bair said yesterday. “Now is the time to put some prudent controls in place to make sure we don’t get into some of the problems we saw in the past,” Bair said at the board meeting. Credit-Default Swaps Spreads on corporate debt rose 1 basis point yesterday to 170 basis points, after soaring 28 basis points last week, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The relative yield peaked at 511 on March 30, 2009, and dropped to as low as 142 on April 21. An indicator of U.S. corporate credit risk rose following two days of declines. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 0.75 basis point to a mid-price of 100.25 basis points, according to Markit Group Ltd. In London, the Markit iTraxx Europe index tied to investment-grade companies fell 0.5 basis point to 99.4. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 6 basis points to 110 basis points as of 8:50 a.m. in Singapore, prices from Royal Bank of Scotland Group Plc show. Investor Confidence The indexes typically rise as investor confidence deteriorates and fall as it improves. 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 of debt. The extra yield investors demand to own emerging-market bonds was unchanged at 291 basis points yesterday, after falling 37 basis points May 10, according to JPMorgan Chase & Co.’s Emerging Market Bond index. Argentine bonds gained for a third day as an early period for institutional investors to tender defaulted bonds as part of the country’s $20 billion swap was set to end today. The yield on Argentina’s 7 percent dollar bonds due in 2015 dropped 17 basis points to 12.55 percent as of 5 p.m. in New York, according to Bloomberg pricing. The bond’s price rose 0.59 cent to 79.51 cents on the dollar. Italian and Portuguese bonds also rose yesterday after the ECB snapped up government debt, halting a potential contagion from Greece’s deficit problems. Bailout Package Under the bailout package, euro region governments will offer guarantees of 440 billion euros to a special fund. The facility will sell debt and use that cash to buy the bonds of euro-area countries in need. Another 60 billion euros will come from the European Union’s budget and 250 billion euros from the International Monetary Fund. “Typically it takes some time for the details of a plan like this to be understood in the market before we can have a full stabilization,” said John Bender, head of U.S. fixed income for Legal & General Investment Management America, who oversees more than $15 billion. ‘Great Reminder’ “The Greece issue is a great reminder that while we’ve come a long way from the credit crisis of the fall of 2008, we still have many issues to work through and finalize and resolve in 2010 to continue the U.S. recovery,” he said. The loss on corporate bonds this month follows returns of 1.16 percent in April and 0.62 percent in March, according to the index. The bonds lost 0.43 percent in the first 10 days of February. Jones Apparel Group Inc., the New York-based clothing company and Banco Cruzeiro do Sul SA, the Brazilian bank, were among at least six companies that postponed bond offerings this month, according to the companies and people familiar with the transactions, who declined to be identified because the decisions were private. Some borrowers are taking advantage of reduced issuance and a rise in debt prices to sell bonds. Enterprise Products Operating LLC, a unit of the largest U.S. pipeline partnership by market value, sold $2 billion of debt in a three-part offering. New York-based Morgan Stanley, the sixth-largest U.S. bank by assets, sold $1.75 billion of three-year floating-rate notes that pay 2.5 percentage points over Libor, Bloomberg data show. “Spreads in our market are actually tighter today and that’s going to be the catalyst for a resurgence in supply and a market that trades much better,” said Justin D’Ercole, head of Americas investment-grade syndicate at Barclays Capital in New York. Sales of high-yield bonds, rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, have totaled $1.6 billion this month. The Morgan Stanley sale helped push investment-grade bonds sales in the U.S. this month to $5.4 billion. To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net

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