U.S. Corporate Credit Swaps Decrease; Crown Castle Issues Bonds
A gauge of U.S. corporate credit risk declined to the lowest level in almost two months as German investor confidence jumped to a seven-month high and job openings in the U.S. climbed to the most in four months.
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, fell 1.7 basis points to a mid-price of 93.8 basis points at 4:28 p.m. in New York, according to prices compiled by Bloomberg. The measure earlier fell to as low as 92.7, the lowest intraday level since Oct. 19.
Indications from Germany to the U.S. that an economic recovery is gaining strength bolstered confidence in the ability of companies to repay their debts. In Washington, lawmakers returned to continue talks on a budget to prevent more than $600 billion of automatic tax increases and spending cuts from taking effect next year, a so-called fiscal cliff that the Congressional Budget Office has said could lead to a recession.
“The economic data has just been better than expected,” Scott Carmack, a portfolio manager at Leader Capital Corp. in Portland, Oregon, said in a telephone interview. Carmack said he expects lawmakers to eventually reach a deal on the fiscal cliff. “At the end of the day, they’re going to come to some sort of compromise,” he said.
The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations rose to 6.9 from minus 15.7 in November, higher than the minus 11.5 median of 38 estimates in a Bloomberg News survey. Job openings in the U.S. climbed 128,000 to 3.68 million in October from a revised 3.55 million the prior month, the Labor Department said today in Washington, indicating the labor market is on the mend.
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.
Crown Castle International Corp. (CCI) issued $1.5 billion of senior secured debt in two parts to help fund a tender offer. The provider of infrastructure for wireless communications, through its CC Holdings GS V LLC unit, sold $500 million of 2.381 percent, five-year notes to yield 175 basis points more than similar-maturity Treasuries and $1 billion of 3.849 percent bonds maturing in April 2023 at a relative yield of 220 basis points, according to data compiled by Bloomberg.
A Moody’s gauge of the strength of speculative-grade bond covenants that protect investors dropped to the lowest in at least two years in November, the ratings company said. The average covenant score, in which 1 is the strongest and 5 the weakest, was 4.15 last month, the lowest since the ratings company began tracking the data in January 2011. Covenant quality was weak across the speculative-grade market, analysts led by Alexander Dill wrote in a report dated yesterday.
The high-yield market is “extremely overvalued,” Martin Fridson, the New York-based chief executive officer of research firm FridsonVision LLC, who started his career as a corporate debt trader in 1976, said in an e-mailed statement.
Based on the consensus forecast of a rise in Treasury yields, Fridson said, the expected 2013 total return on high- yield bonds is below zero percent. “The outcome could prove less bearish if the high-yield overvaluation persists throughout 2013, but the odds are against it.”
The risk premium on the Markit CDX North American High Yield Index fell 8.9 basis points to 469 basis points, according to prices compiled by Bloomberg.
Credit swaps protecting against losses on the debt of Genworth Financial Inc. (GNW) fell 37.5 basis points to 415 basis points as of 4:30 p.m. in New York, the lowest since April, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The Richmond, Virginia-based insurer named Thomas J. McInerney as chief executive officer, the company said today in a statement. Genworth is seeking to regain investor confidence as Moody’s reviews whether to cut the company’s credit rating to junk status.
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