the relative yields on European corporate bonds with investment grade are higher than ever compared to U.S. debt

the relative yields on European corporate bonds with investment grade are higher than ever compared to U.S. debt as the crisis worsens the deficit region and the U.S. economy revives.

Investors demand an extra 189 points based on grade performance in the euro-denominated bonds rather high level of public debt, compared with an area of 169 to U.S. corporate notes, Bank of America Merrill Lynch index data show. The difference of 20 basis points coincide with the peak reached on 15 December.

As government budget cuts European prospects of the region wet for growth, retail sales, consumer sentiment and industrial production in the U.S. are increasing. Bonds Enel SpA are the worst of this month among the 50 largest emitters of Bank of America, the EMU Corporate Index.

"The big change is that there are a lot of fiscal tightening in Europe," said Mark Kiesel, global head of portfolio management of corporate bonds at Pacific Investment Management Co. in Newport Beach, California, bond fund manager of the world's largest . Europe will suffer "animal spirits lower, less spending, less hiring," he said.

The spread of investment grade bonds in euros will be widened 2 basis points this month, while the relative yields in the U.S. declined by 13, Bank of America Merrill Lynch index shows.

Until last month, the relative yields were higher in Europe than the U.S. debt once, in late May. The diffusion index for the euro is historically low because the average maturity of the bond measures is 4.9 years, half of U.S. gauge.

World Spreads

Elsewhere in credit markets, spreads on debt of the U.S. company Europe and Asia fell 1 basis point to 170 basis points, or 1.7 percentage points, according to Bank of America Merrill Lynch Global Broad Market Corporate Index. Yields were little changed at 3.96 percent.

The securities have returned 6.77 percent this year, on average, including reinvested interest, compared with 3.31 percent for government bonds. Equity, measured by the MSCI World Index has gained 10.4 percent, including dividends.

Corporate bond sales worldwide fell to 41.5 billion U.S. dollars from 60.1 billion U.S. dollars the previous week. Occidental Petroleum Corp. sold 2.6 billion U.S. dollars of notes in the largest offering in over five weeks. Bank of America Corp. issued $ 1.5 billion of fixed rate debt in its first such sale since August.

Sales of this year amounted to $ 3,140,000,000,000, compared with $ 3,880,000,000,000 in all of 2009 as companies rushed to raise capital as credit markets began to open.

Bondholder Protection

The cost of protecting the company's debt default in U.S. fell for the third week.

Swaps credit-default in the Markit CDX North America Investment Grade Index, which investors use to cover losses on corporate debt or to speculate on creditworthiness, fell 0.82 points, to 86.44, the lowest close since November 5 a week, according to Markit Group Ltd.

In London, the Markit iTraxx Europe index of swaps of 125 investment grade companies fell 1.71 to 106.04.

the failure credit scores tend to fall as exchange enhances investor confidence and rising as it deteriorates. Contracts pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 a year in a deal to protect $ 10 million of debt.

Leveraged loans

The Standard & Poor's / LSTA U.S. leveraged loan 100 rose 0.43 percent the week at 92.48 cents, the highest weekly close since April 30. The index tracking the 100 largest dollar loans first lien leveraged.

In emerging markets, the relative yields increased the most since the week ended May 21. Spread jumped 26 basis points to 254 basis points, after declining the previous two weeks, according to JPMorgan Chase & Co. index data.

European spreads widened 21 basis points this year, while yields on dollar debt was reduced by the same amount, Bank of America indexes show.

The economy of the euro region will probably expand 1.7 percent next year, the same as in 2010, according to economists in New York, JPMorgan. Bank economists predicted growth in the U.S. accelerate to 3.3 percent from 2.9 percent.

"I do not think that Europe is still on the economy, is how to take the next step forward and not mess up the rescue plan," said Brian Cogliandro, managing director and head of U.S. syndicate Mitsubishi Securities in U.S. UFJ in New York. The U.S. economy "Seems to be some underlying strength, which seems to be on a sustainable path," he said.

European bailouts

Germany, the largest European contributor to the purchase of Greece and Ireland and the continent's largest economy, pushed through an agreement to establish a permanent mechanism of the debt crisis in the talks the ministers of the euro-region finance last week. The program allows the purchase of government bonds and the promotion of short-term credit, although leaders are still divided on whether to raise 750 million euros (986 billion) emergency fund to aid peak Portugal or Spain.

"This is a weaker growth due to all the austerity measures, which are hitting especially the peripheral countries," said Sven Kreitman, a credit analyst at UniCredit SpA in Munich. "Economic growth, the recovery scenario is stronger in the U.S."

sovereign downgrade is adding to the pain European bondholders. Moody's Investors Service downgraded the credit rating five levels to Baa1 Ireland on 17 December and said last week it may downgrade Spain and Greece, which already has a degree of waste.

State Spending

bonds with Rome-based Enel lost 2.1 percent this month, according to Bank of America EMU Corporate Index. The debt sold by Paris-based water company Veolia Environnement SA and Berlin-based rail operator Deutsche Bahn AG lost 2 per cent each.

Bonds Rome-based defense contractor Finmeccanica SpA lost 1.9 percent, almost double the average of 1 percent decline in investment grade securities denominated in euros, Bank of America index data exposure. S & P downgraded the short-term company and downgraded its rating outlook for long-term BBB Dec. 6, saying it is "limited" by the confidence in the Italian state spending.

Euro-area bonds are being hurt, "as the sovereign crisis affects the real economy," said Andrew Moulder, a credit analyst at CreditSights Inc. in London. "With the profits, such as austerity measures of a slowing economy, which has a ripple effect."