Credit Swaps in U.S. Rise; JPMorgan Sells $2.5 Billion of Bonds
A gauge of U.S. corporate credit risk rose for a second day after Federal Reserve minutes released yesterday signaled policy makers may consider slowing the pace of asset purchases.
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, advanced 0.9 basis point to a mid-price of 88.4 basis points at 4:14 p.m. in New York, according to prices compiled by Bloomberg.
The minutes released by the Federal Reserve for the Jan. 29-30 meeting showed policy makers were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds to bolster the economy. Some officials said an earlier end to purchases might be needed, while others warned against a premature withdrawal of stimulus.
“There is a fear in the market that you are taking away a pillar of support in the form of asset purchases,” Andrew Wilkinson, senior market analyst at Miller Tabak & Co. in New York, said in a telephone interview. “It’s like you take away the punch bowl before the party finishes.”
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.
The cost of protecting Safeway Inc.’s (SWY) debt from losses dropped after the second-largest U.S. grocery chain reported fourth-quarter profit that topped analyst estimates.
Five-year credit-default swaps on the Pleasanton, California-based company’s debt decreased 37 basis points to 265 basis points as of 3:42 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.
The risk premium on the Markit CDX North American High Yield Index rose 2.3 basis points to an almost two-week high of 447 basis points, Bloomberg prices show.
JPMorgan Chase & Co., the largest U.S. bank by assets, sold $2.5 billion of bonds with fixed and floating rates.
The lender issued $750 million of three-year, 1.125 percent notes to yield 77 basis points more than similar-maturity Treasuries and $1.75 billion of three-year floaters paying 62 basis points more than the three-month London interbank offered rate, according to data compiled by Bloomberg.
The average relative yield on speculative-grade, or junk- rated, debt widened 4.5 basis points to 503 basis points, data compiled by Bloomberg show.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.
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