A gauge of U.S. corporate credit risk climbed for the first time in four days as concern that budget talks in Washington were stalling offset a bigger-than- expected drop in first-time jobless claims.
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, gained 1.2 basis points to a mid-price of 94.5 basis points at 4:14 p.m. in New York, according to prices compiled by Bloomberg.
Senate Majority Leader Harry Reid said today the Senate won’t consider a small-scale bill if no broader budget deal is reached. House Speaker John Boehner said that President Barack Obama’s proposal is “anything but” balanced, increasing concern that a failure to reach a compromise will prolong the economic slowdown and hinder companies’ ability to repay debt.
“There’s a bit of pricing into the markets that a fiscal cliff deal will get done by the end of the year, and anything that runs contrary to it is going to be a bit of a damper,” Scott MacDonald, head of research at MC Asset Management Holdings LLC in Stamford, Connecticut, said in a telephone interview. “Today was not a good day if you believe in the fiscal cliff being resolved quickly.”
Obama and Boehner were meeting at the White House today for budget talks, according to a spokesman for the speaker. Lawmakers have to agree on a budget to prevent more than $600 billion of automatic tax increases and spending cuts from taking effect next year.
The credit-swaps gauge dropped as much as 0.7 basis point earlier as applications for jobless benefits fell to 343,000 in the period ended Dec. 8, fewer than the 369,000 median forecast in a Bloomberg survey. Retail sales rose in November, figures from the Commerce Department showed today.
“The jobless claims number was pretty good, but people are still concerned about how much employment growth there is, and that’s why you’re not seeing a huge move,” Mirko Mikelic, a money manager at Fifth Third Asset Management in Grand Rapids, Michigan, said in a telephone interview. “But it’s a positive step, and the Federal Reserve is going to continue to try to drive this recovery.”
The Fed announced yesterday it would buy $45 billion of Treasuries per month starting in January, and linked its main interest rate to unemployment and inflation targets. Chairman Ben S. Bernanke said that monetary stimulus can’t fully offset the effect of the fiscal cliff.
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.
Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, is offering $2 billion of dollar- denominated bonds in its first U.S. sale this year. Proceeds will be used for general corporate purposes, the Petach Tikva, Israel-based firm said today in a filing. Moody’s Investors Service will grade the new bonds A3, the ratings company said in a statement today.
The risk premium on the Markit CDX North American High Yield Index rose 7.3 basis points to 477 basis points, according to prices compiled by Bloomberg.
Credit swaps protecting against losses on the debt of Best Buy Co. (BBY) fell 1.6 percentage points to 17.3 percent upfront 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.
That’s in addition to 5 percent a year, meaning it would cost $1.73 million initially and $500,000 annually to protect $10 million of the company’s debt.
The Minneapolis Star-Tribune reported founder Richard Schulze will offer to take the company private by Dec. 15. The bid will be about $5 billion to $6 billion, the newspaper said, citing a person it didn’t name. Schulze has been working with three private-equity firms, including Cerberus Capital Management LP, on a takeover of the electronics chain, people familiar with the matter have told Bloomberg News.
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