A gauge of U.S. corporate credit risk reached the highest level in a week on concern that slowing growth in China will hurt corporate profits.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, climbed 0.9 basis point to a mid-price of 99 basis points, the highest since Sept. 28, according to prices compiled by Bloomberg. Contracts tied to Avnet Inc. increased to the highest in almost 11 weeks.
The index, which has dropped from a 2012 high of 127.5 on June 4, rose as China car sales unexpectedly fell for the first time in eight months, the China Association of Automobile Manufacturers said in a statement. Alcoa Inc., the first company in the Dow Jones Industrial Average to report results this quarter, cut its forecast for global aluminum consumption on slowing Chinese demand.
“We’ve been through a period of a pretty strong rally in credit markets” amid efforts by central banks in Europe and the U.S. to stimulate their economies, Jon Duensing, head of corporate credit at Smith Breeden Associates, said in a telephone interview. “So some consolidation is to be expected.”
Credit swaps typically rise as investor confidence deteriorates and fall as it improves. 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 company, through its Mizuho Corporate Bank Ltd. unit, issued $1.5 billion of five-year notes to yield 90 basis points more than similar-maturity Treasuries and $1 billion of 10-year debt at a relative yield of 130 basis points, data compiled by Bloomberg show.
The average relative yield on speculative-grade debt rose 5 basis points, led by spreads on the bonds of utility companies, which widened 10 basis points, Bloomberg data show. Average spreads on investment-grade debt widened 1 basis point, the data show.
The cost of contracts protecting against Avnet’s (AVT) default rose 29.1 basis points to 230.1 basis points, the highest since July 26, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The swaps rose as the supplier of semiconductors and computer products cut its first-quarter profit estimate, in part because of weaker sales in the Americas region.
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