Credit Swaps in U.S. Rise; Berkshire Sells $2.6 Billion Bonds

A gauge of U.S. corporate credit risk increased for a second day as consumer confidence fell to the lowest level in more than a year.

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 0.4 basis point to a mid-price of 86.2 basis points at 5:35 p.m. in New York, according to prices compiled by Bloomberg.

The Conference Board’s consumer confidence index decreased to 58.6, the weakest since November 2011, from a revised 66.7 in December, figures from the New York-based private research group showed today. Softening economic data may stoke investor concern that a slowdown will reduce companies’ ability to repay debt.

The Federal Open Market Committee will issue its policy statement tomorrow and is expected to keep the U.S. federal funds target unchanged at between zero and 0.25 percent, a Bloomberg survey projects. Investors are also waiting for jobs figures scheduled to be released later this week.

“I would put the FOMC and employment data way ahead of everything else. They will have a huge impact on spreads and show at what growth the economic engine is running,” William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc., said in a telephone interview from Salem, Massachusetts.

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.

Berkshire Bonds

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), which its 82- year-old chairman built into a $241 billion company in market value with takeovers and stock picks, sold $2.6 billion of bonds in four parts to pay down debt due next month.

Berkshire issued $300 million of 0.8 percent, three-year notes to yield 37.5 basis points more than similar-maturity Treasuries, $800 million of 1.55 percent, five-year securities at a spread of 70 basis points, $500 million of 3 percent, 10- year bonds at a spread of 110 basis points and $1 billion of 4.5 percent, 30-year debt at a spread of 140 basis points, according to data compiled by Bloomberg.

The risk premium on the Markit CDX North American High Yield Index decreased 0.1 basis point to 433.4 basis points, Bloomberg prices show.

The average relative yield on junk-rated debt rose 2 basis points to 459 basis points or 4.59 percentage points, led by spreads on the bonds of industrial companies, which increased 5.1 basis points to 485 basis points, Bloomberg data show.

High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

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

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

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