Corporate Credit Swaps in U.S. Fall; Phillip Morris Sells Bonds

A gauge of U.S. corporate credit risk fell as better-than-expected American home sales tempered concerns that political tensions in Italy will intensify the European debt crisis.

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, fell 0.8 basis point to a mid-price of 89.4 basis points at 4:15 p.m. in New York, according to prices compiled by Bloomberg. The index has advanced 0.6 basis point in February and is down 5 basis points this year.

New home sales in the U.S. jumped in January to the highest level since July 2008, according to data from the Commerce Department. The measure increased 15.6 percent to a 437,000 annual pace from 378,000 in December. The monthly gain was the biggest since 1993. The index climbed as much as 0.8 basis point earlier today as the Italian election stalemate spurred concern that the debt crisis will worsen as support for austerity wanes.

“There is a risk-off trade environment and economic data, particularly housing is looking good, but Europe still looks risky,” Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan said in a telephone interview. “The good news in the U.S. is offsetting some of the European bad news.”

Caesars’ Loss

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 of debt.

Bond researcher CreditSights Inc. shifted its recommendation on Caesars Entertainment Corp.’s (CZR) first-lien senior secured debt to “underperform” after the largest owner of U.S. casinos said yesterday its fourth-quarter loss more than doubled.

The risk premium on the Markit CDX North American High Yield Index dropped 5.6 basis points to 445.9 basis points, Bloomberg prices show.

Philip Morris International Inc. (PM) sold $1.85 billion of bonds in a three-part offering that includes its first floating- rate debt since the tobacco seller was spun off from Altria Group Inc. in 2008. The company’s $400 million of two-year notes yield 5 basis points more than the London interbank offered rate, according to data compiled by Bloomberg. It also sold $600 million of 2.625 percent, 10-year debt that yields 95 basis points more than similar-maturity Treasuries, and $850 million of 4.125 percent 30-year debt at a 120 basis-point spread.

Libor, the rate at which banks say they can borrow from each other, was set at 0.29 percent. A basis point is 0.01 percentage point.

The average relative yield on speculative-grade, or junk- rated, debt narrowed 0.7 basis points to 505.7 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.

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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