U.S. Corporate Credit Swaps Pare Increase; H&R Block Plans Bonds

A gauge of U.S. corporate credit risk pared an earlier rise as companies from Caterpillar Inc. (CAT) to Peabody Energy Corp. (BTU) reported earnings for the most recent quarter.

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, rose 0.2 basis point to a mid-price of 93.9 basis points at 4:23 p.m. in New York, according to prices compiled by Bloomberg. The measure had earlier touched as high as 95.7 basis points. Contracts tied to Navistar International Corp. (NAV) rose to the highest level in more than two months.

Caterpillar, the world’s biggest construction and mining equipment company, forecast sales growth for 2013 that is the slowest in four years, stoking concern that the global economic recovery is waning, which may hamper companies’ ability to repay obligations. Bonds of Peabody Energy rose to the highest since March after the largest U.S. coal producer’s earnings surpassed analyst estimates.

“Earnings continue to be weak and Caterpillar this morning put a downer on the market,” Peter Tchir, founder of New York- based TF Market Advisors, said in a telephone interview today. “People are positioned very long and all of a sudden there’s nervousness in the market.”

The credit-swaps index typically rises as investor confidence deteriorates and falls 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.

H&R Block

H&R Block Inc. (HRB) plans to issue 10-year bonds as it confronts $600 million of obligations due in 2013. The largest U.S. tax preparer will sell debt of benchmark size, typically at least $500 million, according to a person familiar with the offering, who asked not to be identified because terms aren’t set.

The average relative yield on speculative-grade debt fell 1 basis point, as spreads of consumer staples companies narrowed 9 basis points and those of technology companies widened 13. The average relative yield of investment-grade bonds was unchanged.

Issuance of high-yield debt increased in September with the lowest-rated bonds comprising 26 percent of junk sales for the month, the most this year, according to a Fitch Ratings report from analysts led by Mariarosa Verde. The trailing 12-month default rate decreased to 2 percent in September from 2.2 percent in August, the analysts wrote.

CDX Index

The risk premium on the Markit CDX North America High Yield Index, a gauge of U.S. speculative-grade corporate debt risk, rose for a third straight day, climbing 5.2 basis points to 489.9 basis points, Bloomberg prices show.

Peabody’s $650 million of 6.5 percent bonds due September 2020 increased 1.1 cents to 105.8 cents on the dollar, the highest since March 5, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The St. Louis-based company said sales in the third quarter were $2.06 billion, compared with $2.04 billion in the previous period.

Credit swaps tied to Navistar rose 54.3 basis points to 680.3, the highest since Aug. 15, 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.

The truckmaker has been under pressure to institute changes from Carl Icahn, who owns 14.9 percent of its shares, as the Lisle, Illinois-based company has posted a $241 million net loss for the first three quarters of this fiscal year.

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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