A gauge of U.S. corporate credit risk fell to the lowest level in more than a month as optimism over the fiscal cliff and Chinese data offset concern that political turmoil may intensify Europe’s debt crisis.
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, dropped 2.5 basis points to a mid-price of 95.7 basis points at 4:50 p.m. in New York, according to prices compiled by Bloomberg. The index closed at 94 basis points Oct. 22.
President Barack Obama and House Speaker John Boehner met one-on-one yesterday at the White House, with representatives for the two leaders issuing statements afterward that “the lines of communication remain open.” China’s factory output and retail sales exceeded estimates in November, reports showed yesterday. Signs that the recovery is gaining strength may ease investor concern that the global economy will falter, impairing corporate balance sheets and hindering companies’ ability to repay debt.
“We had strong retail sales and industrial production, both of which seem to sit with the view that government stimulus policies are working” in China, Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a telephone interview. “The big picture is optimism over the fiscal cliff. The question is when will politicians close ranks, hold hands and come to an agreement.”
Obama told workers today in Michigan he won’t compromise on higher rates for the wealthiest Americans, and that extending middle-class tax cuts is the “bare minimum” lawmakers should do. China’s industrial output climbed 10.1 percent in November from a year earlier and retail sales growth accelerated to 14.9 percent, the country’s statistics bureau said yesterday.
The index rose as much as 0.4 basis point earlier, as Italian Prime Minister Mario Monti said he lost support in the Parliament and will resign. His predecessor, Silvio Berlusconi, announced he will run for the premiership to roll back Monti’s budget rigor. Monti said at a press conference in Oslo today that investors “shouldn’t fear any decision-making void.”
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.
Brown-Forman Corp. (BF/A), the maker of Jack Daniel’s whiskey and Finlandia vodka, sold $750 million of bonds in a three-part offering to help fund its special stock dividend. The company issued equal $250 million portions of 1 percent bonds due in January 2018, 2.25 percent debt maturing in 2023 and securities maturing in 2043 with a 3.75 percent coupon, according to data compiled by Bloomberg. Moody’s Investors Service rated the bonds A1.
The risk premium on the Markit CDX North American High Yield Index fell 5.8 basis points to 480.9 basis points, according to prices compiled by Bloomberg.
The average relative yield for investment-grade bonds is trading 9 basis points wider than the average cost to protect the debt with credit-default swaps, JPMorgan Chase & Co. strategists led by Peter Acciavatti wrote in a Dec. 7 note to clients.
Moody’s trailing 12-month global speculative-grade default rate declined to 2.7 percent in November from 3.1 percent in October, according to a report dated today. The company now expects the rate to end 2012 at 2.7 percent, “well below” the average of 4.8 percent since 1983, Moody’s said.
Credit swaps protecting against losses on the debt of Nexen Inc. (NXY) fell 29.3 basis points to 77.3 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.
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