A gauge of U.S. corporate credit risk dropped to the lowest level in more than five years as Apple Inc. (AAPL) sold $17 billion of bonds in the biggest dollar- denominated offering on record.
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 1.5 basis points to a mid-price of 74.9 basis points at 5:06 p.m. in New York, according to prices compiled by Bloomberg. The measure, which has declined for eight days, closed at the lowest level since November 2007, when the gauge reached 71.9 basis points.
Apple, the iPhone maker with plans to finance a $100 billion capital reward for shareholders with borrowed money, issued $3 billion of floating-rate notes and $14 billion of fixed-rate securities in six parts with maturities from three to 30 years, according to a person familiar with the offering. Demand for the sale today followed data that showed consumer confidence rose more than expected, while home prices in 20 cities increased in February by the most since May 2006.
“Money continues to flow into investment-grade corporate bonds,” Mark Pibl, the head of credit strategy at Pierpont Securities LLC in New York, said in a telephone interview. “The markets are deep, and the liquidity gives a little level of comfort. The macro fundamentals have been generally positive.”
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.
The Conference Board’s index of consumer confidence rose to 68.1, exceeding the highest projection in a Bloomberg survey, from a revised 61.9 in March, data from the New York-based private research group showed today. The S&P/Case-Shiller index of property values rose 9.3 percent from February 2012, more than forecast, after advancing 8.1 percent in the year ended in January, the group said today in New York.
“We continue to believe the theme of spread compression will continue and the wider spread/higher yield sectors will outperform,” JPMorgan Chase & Co. analysts led by Eric Beinstein wrote in a note today. “There is no general concern about credit risk in the market.”
The MNI Chicago Report’s business barometer showed business activity in the U.S. unexpectedly shrank in April for the first time in more than three years, falling to 49 from 52.4 last month. A reading less than 50 signals contraction.
Proceeds from the Apple offering may help the company avoid repatriation taxes on its $102.3 billion of funds held overseas as Chief Executive Officer Tim Cook returns an additional $55 billion to shareholders through 2015 to compensate for a stock that’s been hammered by signs of slowing growth.
Apple’s offering is the largest bond sale on record, Bloomberg data show. The deal topped Roche Holding AG’s $16.5 billion six-part transaction from February 2009, which included $3 billion of one-year floating-rate debt, and AbbVie Inc.’s $14.7 billion six-part issue in November, the data show.
The risk premium on the Markit CDX North American High Yield Index dropped 14 basis points to 361.4 basis points, the lowest level since at least 2009, Bloomberg prices show.
The cost to protect against a default by Best Buy Co. (BBY) dropped as the world’s largest consumer-electronics retailer said it plans to exit Europe by selling its 50 percent stake in a mobile-phone venture for 500 million pounds ($775 million).
Five-year credit swaps linked to Best Buy debt dropped 51.2 basis points to 328.4 basis points by 4:30 p.m., according to CMA, the data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers. That means it would cost the equivalent of $328,400 annually to protect $10 million of obligations for five years.
Best Buy, which is selling its stake to partner Carphone Warehouse Group Plc (CPW), will receive 420 million pounds in cash and 80 million pounds in the U.K. company’s stock, the Richfield, Minnesota-based retailer said today in a statement.
Chief Executive Officer Hubert Joly is evaluating the retailer’s foreign units to free up cash and resources in his effort to revive U.S. stores hurt by competition from Amazon.com Inc. and Wal-Mart Stores Inc. Best Buy generates about 25 percent of its revenue from operations in Europe, China and Canada.
The average relative yield on speculative-grade, or junk- rated, debt tightened 4.8 basis points to 515.8 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.
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