Bond investors are looking over their shoulders at Europe’s financial troubles and feeling the same jitters that have driven U.S. retail stocks down in recent weeks.

This story first appeared in the May 25, 2010 issue of WWD. Subscribe Today.

The S&P Retail Index fell 0.4 percent, or 1.79 points, Monday to 434.61 after falling 4.1 percent last week. The Dow Jones Industrial Average was down more severely, retreating 1.2 percent, or 126.82 points, to 10,066.57, adding to its 4 percent loss last week.

Investors remain fixated on the European financial crisis and the uncertain strength of the U.S. recovery.

And traders have been in much the same funk in the bond market, where weakness makes life harder for retailers trying to raise funds for general corporate purposes, to pay down debt or fund an acquisition.

Last week, J.C. Penney Co. Inc. sold $400 million in senior notes due 2020 and already that debt is being traded below par.

Rosemary Sisson, director and debt analyst at Knight Libertas, noted the bonds, which sold at a spread of 225 basis points, were now trading at 250 basis points, meaning it would cost the retailer more to get the same amount of money from the market this week.

“They’re basically saying, ‘We bought it too rich,’” Sisson said of investors. “J.C. Penney walked away with a good deal.”

And Penney is a desirable name since it doesn’t issue debt often and has about $3 billion of cash on its balance sheet, Sisson said.

“The bond market is concerned about what’s going on globally, particularly in Europe and how contagion could affect our market,” Sisson said. “A lot of investors are just uncomfortable. They don’t feel like taking more risk.”

Shares of Penney fell 1.2 percent to $27 Monday.

European investors pushed the FTSE 100 up 0.1 percent to 5,069.61, while the CAC 40 remained virtually flat at 3,430.93 in Paris and the DAX fell 0.4 percent to 5,805.68 in Frankfurt.

The Hang Seng Index rose 0.6 percent to 19,667.76 in Hong Kong, though the Nikkei 225 fell 0.3 percent to 9,758.40 in Tokyo.

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