Credit Swaps in U.S. Rise on Budget Talks; Harbinger Sells Bonds

A gauge of U.S. corporate credit risk climbed for a second day with budget talks in Washington to avert a so-called fiscal cliff deadlocked.

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, added 0.6 basis point to a mid-price of 95 basis points at 4:42 p.m. in New York, according to prices compiled by Bloomberg. The measure is ending the week down 3.1 basis points, its fourth straight week of declines.

The index rose yesterday from the lowest in almost two months as President Barack Obama and House Speaker John Boehner met to discuss a budget to avert more than $600 billion in spending cuts and tax increases that will take effect next month without action by Congress. Without signs of progress, investor concern is mounting that a failure to reach a compromise will harm the economy, hindering companies’ ability to repay debt.

“You’re going into a year-end, and every weekend is a potential for an event risk tied to the fiscal cliff,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview. Markets will rally or sell off “depending on the tone of the headlines coming out of Washington,” he said.

Senate Republicans are discussing a legislative strategy that would let Congress extend tax cuts for all except the highest income levels, according to two Republican aides who spoke on condition of anonymity.

Consumer Prices

Even as budget talks cast a pall over markets, the cost of living fell more than forecast in November in a sign that U.S. inflation remains in check.

The 0.3 percent decrease in the consumer price index, the first decline since May, followed a 0.1 percent gain in October, the Labor Department reported today in Washington. The median estimate of 80 economists surveyed by Bloomberg called for a 0.2 percent drop.

Industrial production rose 1.1 percent last month, the Federal Reserve said today, the most in two years and more than the median forecast for a 0.3 percent advance in the Bloomberg survey.

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.

Harbinger Sale

Harbinger Group Inc. (HRG), the holding company run by hedge-fund manager Philip Falcone, issued $700 million of bonds to refinance debt. The company, which focuses on acquiring controlling stakes in businesses, issued 7.875 percent notes due July 2019 to yield 694 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Moody’s Investors Service graded the new bonds B3, six levels below investment grade, the ratings company said in a Dec. 10 statement.

The risk premium on the Markit CDX North American High Yield Index advanced 2.8 basis points to 480.4 basis points, Bloomberg data show.

Credit swaps protecting against losses on the debt of Alcatel-Lucent SA fell 8.3 percentage points to 15.6 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.

Alcatel-Lucent reached a 1.6 billion-euro ($2.1 billion) financing deal, gaining time to overhaul the French phone- equipment maker and try to sell as much as 1.5 billion euros of assets. The funding will allow the company to “aggressively” consider all options to boost profitability, improve its strategy and shore up the company’s finances, Chief Executive Officer Ben Verwaayen said today in a statement.

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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