A gauge of U.S. corporate credit risk declined for the first time in three days as business confidence in Germany soared to a 10-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, decreased 2 basis points to a mid-price of 86.4 basis points at 4:11 p.m. in New York, according to prices compiled by Bloomberg.
The Ifo institute’s German business climate index, which jumped the most since July 2010, helped bolster confidence that the euro-area economy is recovering, easing investor concern that a global slowdown will constrain companies’ ability to repay debt. Investors now are awaiting the outcome of Italian elections starting Feb. 24 in which Prime Minister Mario Monti’s austerity policies have drawn opposition from candidates including former Premier Silvio Berlusconi.
“German data is a big cause of some cheer in the market, and there is some tepid optimism ahead of the Italian elections,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million, said in a telephone interview. “Investors are hoping that Berlusconi will not take control of the senate, which may affect austerity measures.”
The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.
Sales of corporate bonds in the U.S. are decelerating after a record start to the year, as investor demand is curbed by the prospect of rising interest rates.
Offerings this month of $74.5 billion compare with $128.1 billion in the corresponding period of January and $108.5 billion in the first 22 days of February 2012, according to data compiled by Bloomberg.
The risk premium on the Markit CDX North American High Yield Index fell from an almost two-week high, declining 11.1 basis points to 435.9 basis points, Bloomberg prices show.
Whirlpool Corp. (WHR), the world’s largest appliance maker, raised $500 million in a bond offering that included its first 30-year debt in almost three decades.
The company issued equal $250 million portions of 3.7 percent, 10-year debt that yields 175 basis points more than similar-maturity Treasuries and 5.15 percent securities due in 2043 that pay 200 more than benchmarks, Bloomberg data show.
The average relative yield on speculative-grade, or junk- rated, debt narrowed 0.2 basis point to 503.1 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.
To contact the reporter on this story: Madhura Karnik in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Alan Goldstein at email@example.com