U.S. Credit Swaps Fall to Lowest in a Week; JPMorgan Sells Bonds

A gauge of U.S. corporate credit risk declined to the lowest level in a week as retail sales in September rose more than expected.

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, fell 1.5 basis points to a mid-price of 95.8 basis points at 4:22 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Sprint Nextel Corp. (S) reached the lowest in more than a year after Softbank Corp. (9984) agreed to buy a stake in the third- largest U.S. wireless carrier.

Retail sales rose for a third straight month, allaying concern that the economic recovery is weakening, bolstering confidence in companies’ ability to repay debt. The 1.1 percent advance followed a revised 1.2 percent increase in August and exceeded the 0.8 percent median forecast of economists surveyed by Bloomberg. The data mark the third straight month of increasing sales.

“The world seems calm” today, Robert Grimm, head of high- yield trading at Odeon Capital Group LLC in Greenwich, Connecticut, said in a telephone interview. “We’re in the middle of a bunch of different things. Europe is still going to be our biggest bugaboo, or the biggest stimulus if they actually come up with something that is going to work.”

The credit-swaps index, which is at the lowest level since Oct. 8, typically falls as investor confidence improves and rises as it deteriorates. 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.

JPMorgan Deal

JPMorgan Chase & Co. (JPM), the biggest U.S. bank, sold $2.85 billion of three-year bonds in two parts, including fixed-rate notes with a record-low coupon.

The lender issued $2.25 billion of fixed-rate securities, with an unprecedented low rate of 1.1 percent for three-year debt, that yield 77 basis points more than similar-maturity Treasuries and a $600 million floating-rate portion to yield 66 basis points more than the London interbank offered rate, according to a person familiar with the offering, who asked not to be identified because they weren’t authorized to speak about the transaction.

Vantage Drilling Co. (VTG), the Houston-based offshore driller, plans to issue $1.15 billion of seven-year notes. The debt, which will be sold through its Offshore Group Investment Ltd. unit, could be sold as soon as tomorrow, according to a person familiar with the offering.

Junk Spreads

The average relative yield on speculative-grade debt fell 4 basis points, led by spreads on the bonds of communications and utilities companies, which narrowed 10 basis points. The average relative yield on investment-grade debt decreased 1 basis point.

Credit swaps protecting against Sprint’s default dropped to 329 basis points, the lowest since July 2011, as of 3:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Softbank, Japan’s third-largest mobile-phone operator, agreed to pay $20.1 billion to acquire about a 70 percent stake in Sprint, according to a statement today.

Sprint’s $2.48 billion of 6.875 percent debt maturing in 2028 rose 4.3 cents to 106 cents on the dollar at 4:11 p.m., according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bonds yield 6.28 percent.

To contact the reporter on this story: Peter Rawlings in New York at prawlings@bloomberg.net

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

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