BHP versus Fortescue: What bond prices tell us

Remarkable figures from the corporate bond market reveal the real picture for the iron ore miners.

Summary: Iron ore prices have climbed nine days straight to about $US60 a tonne, with mining stocks such as Fortescue Metals rebounding. But the bond market is telling a different story: While Fortescue Metals was forced to pay close to 10 per cent on a bond issue to push its repayments into the future, BHP was able to raise fresh debt in the European market at an average interest rate of less than 1 per cent.

Key take-out: It’s stretching the point but the bond market is telling us that BHP Billiton is 10 times less risky than Fortescue, and that ought to be a warning to all investors in second-tier miners with high debt levels.

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