U.S. Credit Swaps Fall Most in 2 Weeks; Caterpillar Sells Bonds

A gauge of U.S. corporate credit risk fell the most in more than two weeks as employment and manufacturing data exceeded estimates and consumer confidence reached a more than four-year high.

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, declined 3.4 basis points to a mid-price of 96.3 basis points at 4:23 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest drop since the measure declined to 92.2 basis points on Oct. 16.

The Conference Board’s measure of consumer sentiment increased in October to the highest since February 2008, which may signal to investors that the economic recovery will ease pressure on balance sheets, ensuring companies will be able to repay debts. Applications for jobless benefits fell 9,000 to 363,000 in the week ended Oct. 27, the fewest in three weeks, the Labor Department reported today in Washington while the Institute for Supply Management’s factory index showed manufacturing climbed to the highest since May.

“Credit risk shrinks when you get this sort of good economic data,” William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts, said in a telephone interview. As investors look toward the monthly employment report tomorrow “all the factors that are likely to drive into this number” indicate it could be better than expected.

Caterpillar Bonds

The credit-swaps index 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.

Caterpillar Inc. (CAT), the world’s largest builder of construction and mining machinery, issued $1.2 billion of bonds in a two-part offering. The company, through its financing arm, sold equal portions of 0.7 percent, three-year notes to yield 35 basis points more than similar-maturity Treasuries and 1.25 percent, five-year securities with a 55 basis point spread, according to data compiled by Bloomberg.

The average relative yield on speculative-grade debt narrowed one basis point, led by spreads on the bonds of communications companies, which fell 6 basis points.

Panasonic Loss

Credit swaps protecting against Panasonic Corp.’s (6752) default jumped 91 basis points to 471.7 basis points, the highest ever level, 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.

Japan’s second-largest TV maker forecast a loss 30 times bigger than analyst estimates because of restructuring costs and falling demand.

Contracts guarding against losses on Sony Corp.’s (6758) debt climbed 32.1 basis points to an all-time high of 488 basis points. The biggest consumer-electronics exporter in Japan unexpectedly posted its seventh straight quarterly loss amid falling demand as consumers flock to competitors’ devices.

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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