A gauge of corporate credit risk increased by the most in three weeks after the number of Americans filing applications for unemployment benefits unexpectedly climbed.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on company debt or to speculate on creditworthiness, added 2.3 basis points to a mid-price of 101.7 basis points at 5:15 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest increase since Aug. 2.
The swaps index jumped after a Labor Department report showed jobless claims rose by 4,000 to 372,000 in the week ended Aug. 18, stoking concern the recovery is slowing. Economists in a Bloomberg survey called for 365,000. In Europe, German Finance Minister Wolfgang Schaeuble said allowing Greece more time to meet debt obligations wouldn’t solve its problems and would increase costs for creditors.
“With soft global data as a backdrop, confirming a precarious global economic environment, the market was also set off by comments from the Germans which seem opposed to extending Greece additional latitude,” said Adrian Miller, director of global markets strategy at GMP Securities LLC in New York.
German Chancellor Angela Merkel hosted French President Francois Hollande today as the leaders of Europe’s two biggest economies seek common ground on Greece and the wider euro-area debt crisis. The meeting “did not deliver a consensus view,” Miller said.
Raining on Bond’s Parade
Federal Reserve Bank of St. Louis President James Bullard said recent signs of improvement in the economy would prompt him to oppose any new program by the central bank to buy bonds to reduce borrowing costs. The comments “rained on the bond market somewhat,” Miller said.
The credit-swaps index, which typically increases as investor confidence deteriorates, has climbed from an intraday level of 96.9 basis points on Aug. 21, the lowest since May 4. The contracts 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.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 3.5 basis points to 145.2, and the Markit iTraxx Crossover Index tied to 50 companies with mostly speculative-grade credit ratings added 12.8 to 587.9.
The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, narrowed 0.72 basis points to 18.5. The measure, which falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities, has dropped from 54.7 in November.
Credit swaps tied to Hewlett-Packard Co. (HPQ) jumped after the Palo Alto, California-based company posted a record quarterly loss and reported slumping sales for personal computers and services aimed at businesses.
Contracts tied to the company’s HP Enterprise Services unit climbed 3.4 basis points to 42.5 basis points, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. Swaps tied to the parent company rose 13.5 to 277.
The company, whose fiscal third-quarter loss of $8.86 billion includes a 10 percent decline in PC revenue, pared the high end of its full-year forecast for profit excluding some items to $4.07 a share, from $4.10, missing the average $4.08 analyst estimate compiled by Bloomberg.
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