U.S. Corporate Credit Swaps Hold; AT&T Sells $2.25 Billion Bonds

A gauge of U.S. corporate credit risk held as European Central Bank President Mario Draghi expressed concern that the euro’s strength will hamper efforts to pull the economy out of recession.

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, rose 0.2 basis point to a mid-price of 89.9 basis points at 4:26 p.m. in New York, according to prices compiled by Bloomberg.

The ECB kept benchmark interest rates unchanged and Draghi said he may consider more steps to stem a rally in the euro at a press conference in Frankfurt today. A strong currency may stymie a recovery by curbing exports and pushing inflation too low. A global economic slowdown may stoke investor concern that companies’ ability to repay debt will be hindered.

“Draghi’s comments recognize a risk of the economic recovery in Europe,” Dorian Garay, a New York-based money manager for an investment-grade debt fund at ING Investment Management, said in an e-mail message. “This is a macro risk which is still in the cards and it was refreshed by those comments.”

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.

Jobless Claims

Applications for jobless benefits dropped 5,000 to 366,000 in the week ended Feb. 2, Labor Department figures showed today in Washington. Economists forecast 360,000 claims, according to the median of 53 estimates in a Bloomberg survey. U.S. worker productivity fell in the fourth quarter by the most in almost two years, pushing labor expenses up.

“The initial jobless claims number unfortunately didn’t really change the needle today,” Andrew Wilkinson, senior market analyst at Miller Tabak & Co. in New York, said in a telephone interview.

The risk premium on the Markit CDX North American High Yield Index increased 0.2 basis point to 449.4 basis points, Bloomberg prices show.

AT&T Inc. sold $2.25 billion of three-year debt in a two- part offering that included its first floating-rate note in almost five years.

AT&T Offering

The biggest U.S. phone company issued $1 billion of 0.9 percent debt that yields 55 basis points more than similar- maturity Treasuries and $1.25 billion of notes that pay 38.5 basis points more than the London interbank offered rate, according to data compiled by Bloomberg.

The average relative yield on speculative-grade or junk- rated debt rose 2.8 basis points to 495.4 basis points, according to Bloomberg data.

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.

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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