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U.S. Company Credit Swaps Rise as China’s Inflation Accelerates

A gauge of U.S. corporate credit risk advanced for the third time in five sessions after China’s inflation climbed to a seven-month high.

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 1 basis point to a mid-price of 87 basis points at 4:29 p.m. in New York, according to prices compiled by Bloomberg. The measure increased 1.5 basis points this week.

The Chinese consumer price index rose 2.5 percent in December from a year earlier, higher than a median estimate of 2.3 percent in a Bloomberg News survey, the National Bureau of Statistics said today in Beijing. An increase in Chinese inflation may heighten investor concern that the world’s second biggest economy will curb stimulus, hampering economic growth and hindering companies’ ability to repay debt.

China’s rising inflation is “good enough of an excuse for investors to pull back,” Andrew Wilkinson, senior market analyst at Miller Tabak & Co. in New York, said in a telephone interview. “Two-thirds of the increase was related to food prices caused by the winter; being disappointed by one piece of data isn’t sufficient to stop the bond market in its tracks, it’s just an excuse.”

Food prices gained 4.2 percent in December from a year earlier as vegetable prices rose 14.8 percent, the data showed.

Wells Fargo

Wells Fargo & Co. (WFC), the largest U.S. home lender, reported a 24 percent rise in fourth-quarter earnings, the San Francisco- based bank said today in a statement. Margins narrowed as the lender takes a bigger share of mortgage and commercial markets.

Corporate earnings aren’t “that bad” so far, according to William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts.

“Earnings were sort of infected by the political problems at the end of the year, and there could be some bad news embedded in that,” Larkin said in a telephone interview. “If they start to disappoint, you’re going to see spreads widen.”

Twenty-two of the 27 companies of the Standard & Poor’s 500 Index that have reported fourth-quarter earnings beat estimates, data compiled by Bloomberg show.

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.

New Issuance

Daimler AG (DAI) and Intesa Sanpaolo SpA (ISP) led companies in the busiest week for dollar-denominated bond sales in 10 months. Daimler, the world’s third-largest maker of luxury vehicles, raised $3 billion and Torino, Italy-based Intesa issued $3.5 billion of debt as they headed sales of at least $52.4 billion, the most since $60.4 billion in the five days ended March 9, Bloomberg data show.

The average relative yield on junk-rated debt gained 1 basis point to 4.79 percentage points today. Bonds of utility companies advanced 6 basis points to 9.53 percentage points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at S&P. A basis point is 0.01 percentage point.

Best Buy

The risk premium on the Markit CDX North American High Yield Index rose 6.6 basis points to 443.2 basis points, according to prices compiled by Bloomberg.

Credit swaps protecting against losses on the debt of Best Buy Co. (BBY) dropped 2.1 percentage points to 16.9 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.

Sales at the consumer-electronics retailer stabilized in the U.S. during the holiday season after three quarters of declines, bolstering founder Richard Schulze’s bid to take over the company. Sales at domestic stores open at least 14 months were unchanged in the nine weeks ended Jan. 5, the Richfield, Minnesota-based company said today in a statement.

To contact the reporters on this story: Madhura Karnik in New York at mkarnik@bloomberg.net; 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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