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U.S. Corporate Credit Risk Falls Amid Jobless Claims Decline, Swaps Show
A benchmark indicator of corporate credit risk in the U.S. fell after the government reported a bigger-than-estimated drop in jobless claims.
The number of Americans filing first-time claims for unemployment insurance fell to 457,000 last week, signaling the labor market will be slow to improve even as the overall economy grows. Exxon Mobil Corp., the largest U.S. oil company, and Goodyear Tire & Rubber Co. posted results that beat analysts’ forecasts while technology companies reported earnings below estimates, pulling stocks down.
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, decreased 1.2 basis points to a mid-price of 103.92 basis points as of 6:42 p.m. in New York, according to index administrator Markit Group Ltd. The index climbed as much as 0.1 basis point and fell as much as 2.9 basis points.
“Earnings have been coming in a lot better than expected, but I still don’t think people are thinking we’re out of the woods,” said Andrew Kuan, senior trader at Primus Asset Management in New York. “We had in-line jobless claims and continuing claims. As a result, credit is feeling a little bit better today.”
Initial jobless claims dropped by 11,000 in the week ended July 24 from a revised 468,000, Labor Department figures showed today in Washington. First-time applications last week were in line with the median forecast in a Bloomberg News survey. The number of people receiving unemployment benefits rose, while those getting extended payments declined.
Exxon Mobil
The index, which typically falls as investor confidence improves, ended May 13 at 100.1 basis points. Yesterday, the benchmark rose 2.8 basis points to 105.3, Markit prices show.
Exxon Mobil reported its biggest profit increase since 2003 as recovering economies around the world spurred gains in energy prices. Per-share profit was 15 cents higher than the average of 17 analyst estimates compiled by Bloomberg. Goodyear had a 15 percent increase in sales and beat the average analyst estimate in a Bloomberg survey. Earnings topped estimates at about 77 percent of its companies that have reported second-quarter results so far.
Swaps on Exxon Mobil fell 0.1 basis point to 45.2 and Goodyear eased 3.7 basis points to 558.3, according to data provider CMA.
Wiping Out
Swaps on Brunswick Corp. dropped 64 basis points to 451.4, CMA data show. The maker of recreational consumer products, which earns most of its revenue from building boats, reported a second-quarter profit of 43 cents a share, compared with the average analyst estimate of a 3 cent loss in a Bloomberg survey.
The Standard & Poor’s 500 Index fell for a third day, as earnings and forecasts disappointed investors at technology and consumer-staples companies, wiping out an early advance. Nvidia Corp. and Symantec Corp. issued lower forecasts.
“Given the selloff you had in stocks,” said Morgan Stanley strategist Adam Richmond. “Credit’s holding up fairly well.”
Credit-default swaps on Alcoa Inc., AT&T Inc. and Ford Motor Co. fell after each sold debt this week in the wake of second-quarter results that beat analysts’ estimates.
“There’s been a lot of new issues coming out -- you saw Alcoa, AT&T, Union Pacific, McDonald’s and Ford come out,” Kuan said. “It shows their ability to tap the market and manage their debt a little better, so as a result, you see CDS collapse a little bit more on some of those names.”
Andrew Cuomo
Contracts protecting against losses on Ford decreased 6.3 basis points to 565.7, according to CMA. Swaps on Alcoa declined 29 basis points since July 23. The company sold $1 billion of 10-year notes on July 26 in its biggest offering in two years, according to data compiled by Bloomberg.
The cost to protect bonds issued by life insurers climbed after New York Attorney General Andrew Cuomo began a fraud probe into the life insurance industry and subpoenaed MetLife Inc. and Prudential Financial Inc. for information about profits on death benefits retained from the families of deceased policyholders, including military personnel.
Contracts on Prudential climbed 5.8 basis points to 232.5, and MetLife added 1 basis point to 272.6, according to CMA.
Credit swaps pay the buyer face value in exchange for the underlying security if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point, 0.01 percentage point, equals $1,000 annually on a contract protecting $10 million of debt.
To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net
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