U.S. Company Credit Swaps Pare Fall; RBC Sells Benchmark Bonds

A gauge of U.S. corporate credit risk pared an earlier decline as orders for U.S. business equipment stalled in September and Apple Inc. forecast profit and revenue that fell short of analysts’ predictions for the holiday 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, fell 0.2 basis point to a mid-price of 98.5 basis points at 5:07 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Best Buy (BBY) reached a record high, Bloomberg prices show, after the company said profit will be “significantly” lower than last year.

Apple’s profit in the current period will be about $11.75 a share, the Cupertino, California-based company said today in a statement. That compares with $15.49 a share, the average of analysts’ estimates compiled by Bloomberg. Bookings for non- defense capital goods excluding aircraft were little changed in September, a Commerce Department report showed today in Washington. That was short of the 0.8 percent increase predicted by analysts and may heighten investor concern that economic growth is slowing, hindering companies’ ability to repay debt.

Credit markets responded to economic data that were “a mixed bag this morning. If you throw out Boeing then you’re flat,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, said in a telephone interview. “While you hate to say it because the world is bigger than Apple,” the company’s earnings can “really shape risk appetite.”

Aircraft bookings, which are often volatile, rose in September as Boeing Co. said it received 143 orders for the month, up from 1 in August.

RBC Offering

The credit-swaps index, which touched as low as 96.8 basis points earlier, 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.

Royal Bank of Canada, the nation’s largest lender, raised $1 billion in its first sale of benchmark dollar-denominated three-year notes in more than seven months. The bank, which said this week it agreed to buy Ally Financial Inc.’s Canadian auto- finance and deposit business, sold the 0.8 percent securities to yield 37.5 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

Relative Yields

The average relative yield on investment-grade debt fell 1 basis point, led by financial companies’ subordinated bonds, which narrowed 2. The spread on speculative-grade debt declined 3 basis points.

The risk premium on the Markit CDX North America High Yield Index, a measure of speculative-grade corporate debt risk, dropped 3.4 basis points to 512.7 basis points, after closing at the highest level since Sept. 5 yesterday, according to prices compiled by Bloomberg.

Contracts protecting against Best Buy’s default rose 2.6 percentage points to 16.7 percent upfront 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.

Fiscal third-quarter profit will be short of last year’s results, as comparable-store sales will drop at a rate consistent with the first two quarters, the retailer said in a statement yesterday. Same-store sales fell 5.3 percent in the first quarter and 3.2 percent in the second.

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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