U.S. Corporate Credit Swaps Pare Rise; Samarco Sells Debt

A gauge of U.S. corporate credit risk pared an earlier rise as the economy grew at a faster-than- expected pace in the third 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, held at a mid-price of 98 basis points at 4:34 p.m. in New York, according to prices compiled by Bloomberg. The measure reached as high as 99.8 basis points earlier today, the most in four weeks.

Gross domestic product in the U.S. grew at a 2 percent annualized rate in the most recent quarter, Commerce Department figures showed today. That exceeded the 1.8 percent median estimate in a Bloomberg survey.

The GDP report eased concerns that economic recovery would slow, reducing the ability of borrowers to meet debt-service requirements, as government spending helped prop up a growth rate that would otherwise have been closer to 1.1 percent, Noel Hebert, chief investment officer at Bethlehem, Pennsylvania- based Concannon Wealth Management LLC, wrote in an e-mail. “Looks like folks want to feel good about the GDP number.”

The credit-swaps index, which reached 100.2 basis points Sept. 28, 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.

Samarco Mineracao

The U.S. two-year interest rate swap spread, a measure of stress in credit markets, fell 0.18 basis point to 10.32 basis points. The measure, which falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities, last week touched the narrowest on an intraday basis since at least 1988, as far back as Bloomberg tracks the data.

Samarco Mineracao SA, the Brazil-based joint venture between Vale SA (VALE3) and BHP Billiton Ltd. (BHP), sold $1 billion of bonds in its first ever dollar-denominated offering. The iron ore processor issued 10-year, 4.125 percent debt to yield 245 basis points more than similar-maturity Treasuries, Bloomberg data show.

Credit swaps protecting the debt of American Axle & Manufacturing Holdings Inc. (AXL) rose 56.9 basis points to 593.4 basis points, poised for the highest closing level since Sept. 4, 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 maker of axles and crankshafts today reported adjusted profit per share of 7 cents for the third-quarter, short of the average estimate of 33 cents a share in a Bloomberg survey.

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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