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U.S. Company Credit Swaps Fall; Avon Offers $1.5 Billion in Debt

A gauge of U.S. corporate credit risk fell after initial jobless claims dropped to a six-week low, signaling improvement in the labor market.

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 1.2 basis points to a mid-price of 82.5 basis points at 4:19 p.m. in New York, according to prices compiled by Bloomberg.

First-time jobless claims unexpectedly fell by 7,000 to 340,000 in the week ended March 2, the lowest since January, according to data today from the Labor Department in Washington. The median forecast of 50 economists surveyed by Bloomberg called for an increase to 355,000. Signs that employment is improving may ease investor concern that companies will struggle to repay debt.

“Credit markets are following equities as jobless claims data is positive, driving stocks higher, and people continue to be bullish for now on the economy,” Robert Grimm, head of corporate trading at New York-based Odeon Capital Group LLC, wrote in an e-mail.

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.

Avon Offering

Avon Products Inc. (AVP), the world’s largest door-to-door cosmetics seller, is offering $1.5 billion of bonds in a four- part sale that includes its first 30-year securities on record.

The deal consists of equal $250 million portions of three- year notes that may yield 200 basis points more than similar- maturity Treasuries and 30-year securities at 375 basis points more than benchmarks, as well as equal $500 million pieces of seven-year bonds at a 325 basis-point spread and 10-year debentures at 312.5, according to a person familiar with the transaction who asked not to be identified, citing lack of authorization to speak publicly.

Five-year credit swaps on Avon’s debt dropped 33 basis points to 260 basis points as of 3:57 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 fell 5.7 basis points to 412.8 basis points, Bloomberg prices show.

The average relative yield on speculative-grade, or junk- rated, debt fell 6.5 basis points to 485.8 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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