Credit Swaps in U.S. Climb; Heinz Risk Increases for Second Day

A gauge of U.S. corporate credit risk advanced as Group of 20 finance ministers meet in Moscow to discuss global economic growth.

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 1 basis point to a mid-price of 86.9 basis points at 4:04 p.m. in New York, according to prices compiled by Bloomberg.

G-20 finance officials and central bankers began talks in the Russian capital today to find some common ground on currencies, with investors seeking clarity on how comfortable they are with a sliding yen.

“Some market players could be buying insurance for a long weekend with a G-20 meeting,” Scott Carmack, a portfolio manager at Leader Capital Corp. in Portland, Oregon, said in a telephone interview today. While the currency decision would not have a direct effect on swaps, the market may be “looking for any catalyst to sell-off a bit” Carmack said.

The U.S. markets will be closed on Monday for the Presidents Day holiday.

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 swap protecting $10 million of debt.

Heinz Risk

The cost to protect HJ Heinz Co.’s debt rose for a second day after Warren Buffett’s Berkshire Hathaway Inc. and Jorge Paulo Lemann’s 3G Capital agreed to buy the ketchup maker for about $23 billion yesterday.

Five-year credit-default swaps on the Pittsburgh-based company’s debt climbed 17.3 basis points to 196.7 basis points at 3:59 p.m. in New York, Bloomberg prices show. That’s almost five times the level of the contracts before the deal was announced.

The risk premium on the Markit CDX North American High Yield Index increased 2 basis points to 438 basis points, Bloomberg prices show.

Sales of company bonds in the U.S. fell 6 percent this week to $23.1 billion as relative yields on the debt narrowed.

Vodafone Group Plc raised $6 billion in the largest dollar sale in about three weeks and Battle Creek, Michigan-based Kellogg Co. sold $650 million of fixed- and floating-rate debt, according to data compiled by Bloomberg. Sales decreased from $24.6 billion last week, bringing February’s total to $49.4 billion, compared with $90 billion in the similar period last year.

The average relative yield on speculative-grade or junk- rated debt declined 1.2 basis points to 503 basis points, according to Bloomberg data.

High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less 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