A gauge of U.S. corporate credit risk was little changed as European finance chiefs met to discuss steps to contain the debt crisis and as budget talks continued in the U.S.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, rose 0.4 basis point to a mid-price of 100.2 basis points at 5:24 p.m. in New York, according to prices compiled by Bloomberg.
European ministers called an emergency meeting next week after failing to reach an agreement on setting up a common bank supervisor in Brussels today. U.S. President Barack Obama said in a Bloomberg Television interview that the Republican offer on the so-called fiscal cliff doesn’t go far enough. Investors are concerned that failure to reach a compromise may prolong the economic slowdown and hinder companies’ ability to repay debt.
“It’s the push and the pull associated with the fiscal cliff,” Jon Duensing, head of corporate credit at Smith Breeden Associates, said in a telephone interview from Boulder, Colorado. “Until we get something more meaningful, I don’t think we are going to get a major move.”
Obama’s administration rejected a Republican plan for the fiscal cliff, and the President said Republicans must accept higher tax rates for top earners as a condition for negotiations. White House officials met with Wall Street executives yesterday to urge them to pressure Congress for a deal to avert the more than $600 billion of automatic spending reductions and tax increases set to take effect in January.
Euro-area governments have a year-end deadline to set up a joint supervisor at the Frankfurt-based European Central Bank. ECB oversight is a required first step before banks can directly tap the currency area’s firewall fund.
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.
Intel Corp. (INTC), the world’s largest semiconductor maker, issued $6 billion of bonds in four parts to repurchase common stock. The company sold $3 billion of 1.35 percent five-year notes, $1.5 billion of 2.7 percent 10-year securities and equal $750 million portions of 4 percent 20- and 4.25 percent 30-year debt, according to data compiled by Bloomberg. The bonds will be rated A1 by Moody’s Investors Service, the company said in a statement.
The average relative yield on junk-rated debt narrowed 3 basis points to 5.72 percentage points, led by spreads on the bonds of health care companies, which dropped 6 basis points to 4.67 percentage points, Bloomberg data show. High-yield, high- risk debt is rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.
The risk premium on the Markit CDX North American High Yield Index rose 1.2 basis points to 507.4 basis points, Bloomberg prices show.
The number of junk-rated companies that are under liquidity stress rose to the highest level since March as the European debt crisis and scheduled U.S. tax increases and spending cuts could hamper companies’ cash needs, Moody’s Investors Service analysts led by John Puchalla wrote in a Dec. 3 report.
The ratings company’s Liquidity-Stress Index, which falls when corporations’ ability to manage cash needs appears to improve and rises when it weakens, increased to 4 percent in November from 3.6 percent in October, remaining below the recent high of 4.5 percent recorded last December.
Credit swaps protecting against losses on the debt of Darden Restaurants Inc. (DRI) rose 22.1 basis points to 163.3 basis points 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 owner of the Red Lobster and Olive Garden chains reported preliminary fiscal second-quarter profit of about 25 cents to 26 cents, the company said today in a statement. Excluding certain items, earnings were about 31 cents to 32 cents a share, below the analysts’ average estimate of 46 cents compiled by Bloomberg.
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