U.S. Company Credit Swaps Fall to 2-Year Low; Glaxo Sells Debt

A gauge of U.S. corporate credit risk fell to a two-year low as sales at retailers rose in February by the most in five months.

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, declined 0.7 basis point to a mid-price of 79.1 basis points at 4:51 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest level since Feb. 8, 2011.

U.S. retail sales rose by 1.1 percent last month, Commerce Department figures showed today in Washington, as an improved job market and stronger household finances cushioned the effect of higher payroll taxes. The median projection of 82 economists surveyed by Bloomberg called for a 0.5 percent gain. An improving economic environment may alleviate investor concern that companies will have difficulty repaying their debt.

“Once again we have some optimistic economic results and that’s one more factor supportive of credit markets,” Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said today in a telephone interview.

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.

Glaxo Issuance

GlaxoSmithKline Plc (GSK) issued $3 billion of bonds in its first dollar-denominated sale in more than 10 months, according to data compiled by Bloomberg. The U.K.’s largest drugmaker sold $1.25 billion of 0.7 percent, three-year notes to yield 35 basis points more than similar-maturity Treasuries, $1.25 billion of 2.8 percent, 10-year debentures at a 90 basis-point spread and $500 million of 4.2 percent, 30-year bonds at 105, Boomberg data show.

The company last sold dollar debt in May, issuing $5 billion in three parts including $2 billion of 2.85 percent, 10- year bonds yielding 100 basis points more than benchmarks, according to data compiled by Bloomberg. The bonds traded at 100.9 cents on the dollar to yield 2.74 percent yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

The risk premium on the Markit CDX North American High Yield Index slid 5 basis points to 394.3 basis points, the lowest level since Feb. 21, 2011, Bloomberg prices show.

Steel Prices

The cost to protect against default by West Chester, Ohio- based AK Steel Holding Corp. (AKS) rose as steel coil prices declined.

Five-year credit-default swaps on AK Steel increased to 19 percent upfront from 18.8 percent yesterday, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Hot-rolled steel coil, a benchmark product used in cars, trucks and appliances, dropped 13 percent to $605 a short ton yesterday from a year earlier, according to data compiled by Bloomberg from The Steel Index. The commodity has declined 5.7 percent since Jan. 1.

The average relative yield on speculative-grade, or junk- rated, debt slipped 2.2 basis points to 490.2 basis points, Bloomberg data 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: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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