U.S. Credit Swaps Drop on General Motors IPO, Jobless Report

General Motors Co.’s $20 billion initial public offering and strong economic data helped push the cost of protecting U.S. corporate bonds from default to the lowest level in a week.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 2 basis points to a mid- price of 90.5, according to index administrator Markit Group Ltd. Credit-default swaps on First Data Corp. dropped to their lowest since Nov. 9.

Applications for U.S. unemployment insurance payments rose by 2,000 to a less-than-expected 439,000 in the week ended Nov. 13, Labor Department figures showed today in Washington. GM, which went bankrupt last year after almost a century on the New York Stock Exchange, gained 3.6 percent to $34.19, boosting stocks and confidence in credit, according to Jason Quinn, co- head of U.S. high-grade trading at Barclays Capital in New York.

“You’re almost in this sweet spot where you have one of the best technical backdrops ever and fundamentals are starting to improve,” Quinn said. “You can’t really argue that you’re supposed to be negative on risk assets.”

The Markit CDX index, which typically falls as investor confidence improves and rises as it deteriorates, ended Nov. 11 at 90.4 basis points.

The Standard & Poor’s 500 Index rallied 1.5 percent, the most in two weeks. GM’s owners, including the U.S. Treasury, sold $15.8 billion of common shares at $33 each yesterday in the second-largest U.S. IPO on record.

Manufacturing Expands

The number of people collecting unemployment insurance dropped to the lowest level in two years, while those receiving extended payments climbed. Another report showed manufacturing in the Philadelphia region expanded in November at the fastest pace this year as orders, sales and employment surged, indicating U.S. and overseas demand will keep fueling growth.

Irish Finance Minister Brian Lenihan said the government could accept an aid package for its banks after talks with the European Union and International Monetary Fund conclude. Ireland will probably seek a bailout from the EU and IMF worth “tens of billions” of euros to rescue its battered banks, central bank Governor Patrick Honohan told Irish state broadcaster RTE.

“The better tone out of Europe as an aid package to help Ireland seems near” has helped drive the index lower, Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York, wrote in an e-mail. “We have definitely had a change of tone in risk assets.”

Sears Swaps Surge

Credit-default swaps on Atlanta-based First Data dropped after the credit-card processor said it will be able to “stomach” the interest expense on debt that will require cash payments in 2012. The contracts lost 87.2 basis points to 952.3, according to data provider CMA.

Contracts on Sears Roebuck Acceptance Corp., the finance unit of Sears Holdings Corp., soared 45.7 basis points to 361.2, according to CMA, after the largest U.S. department-store chain said its third-quarter loss widened.

The drop in same-store sales and earnings loss at Hoffman Estates, Illinois-based Sears don’t follow the trends at Limited Brands Inc. and Lowe’s Cos., according to a note from George Ashur and Michael Reiner, New York-based credit strategists with Societe Generale SA. Clothing retailer Limited Brands lifted its 2011 earnings-per-share estimate yesterday and Lowe’s, the second-largest U.S. home-improvement retailer, said Nov. 15 that third-quarter profit gained 17 percent.

Sears said “this drop was the result of lower shopping traffic and greater promotional activity that adversely affected gross margins,” they wrote in the note. “This worse-than- expected performance may have implications for the company’s promotional activity during the crucial Christmas selling season.”

Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis 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

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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