By Caroline Hyde and Sonja Cheung

(Adds credit-default swaps in seventh paragraph.)

July 28 (Bloomberg) -- Credit Suisse Group AG and Spain’s Banco Bilbao Vizcaya Argentaria SA are tapping demand for financial debt after the door for new issuance in Europe was opened by the results of the stress tests.

Switzerland’s second-largest bank is selling so-called Tier 1 bonds in dollars, which banks issue as regulatory capital, or a cushion against losses. BBVA offered the first public issue of senior unsecured bonds from a Spanish bank since April, according to data compiled by Bloomberg.

Lenders are rushing to sell bonds after results from stress tests eased investor concern that banks would suffer losses on holdings of sovereign debt and as regulators softened proposed capital rules. The extra yield investors demand to hold European financial notes over government debt fell 9 basis points to 224 since the results were released July 23, Bank of America Merrill Lynch data show.

“Financials were waiting on the sidelines until after the stress test results,” said John Raymond, an analyst at independent research firm CreditSights Inc. in London. “Investors feared there could’ve been something nasty, but with a general positive outcome they’re now flocking to the market.”

Test results showed 84 of 91 institutions passing and provided greater-than-expected transparency about lenders’ holdings of sovereign debt. European banks were shown only to need 3.5 billion euros ($4.5 billion) of new capital, about a tenth of the lowest analyst estimate.

Basel Proposals

The Basel Committee on Banking Supervision, which sets capital standards for banks worldwide, announced on July 26 softer capital rules proposed for lenders. The regulator was asked by Group of 20 leaders to draft rules in the aftermath of the credit crisis that has seen bank losses and writedowns exceed $1.7 trillion.

The Markit iTraxx Financial Index of credit-default swaps linked to 25 European banks and insurers has plunged 87 basis points to 113 since June 8, according to JPMorgan Chase & Co. The contracts are used to hedge against losses or speculate on creditworthiness and a basis point equals $1,000 annually on a contract protecting $10 million of debt.

Credit Suisse is offering investors a coupon of 7.875 percent to 8 percent to buy its perpetual dollar debt, down from initial guidance in the mid-8 percent range, according to two people with knowledge of the sale, who declined to be named as the deal isn’t completed. The notes are callable after five years, the people said.

Premium Demand

BBVA’s 1.25 billion euros of 2015 bonds will be priced to yield 170 basis points more than the benchmark mid-swap rate, two people with knowledge of the deal said. That compares with the 85 basis-point spread on the Bilbao-based lender’s 1 billion euros of five-year notes sold in April. The 3.5 percent securities now trade at 157 basis points over swaps, Bloomberg composite prices show.

“The market is opening up, but issuers still need to offer a premium,” said Raymond.

Rabobank Nederland NV added 750 million euros to its 4.125 percent 2025 bonds after the world’s largest agricultural lender sold 300 million pounds ($468 million) of bonds due 2060 yesterday, according to data compiled by Bloomberg.

--Editors: Michael Shanahan, Paul Armstrong

To contact the reporters on this story: Caroline Hyde in London chyde3@bloomberg.net;

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net