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U.S. Company Credit Risk Rises; Rio Tinto Sells $3 Billion Bonds

A gauge of U.S. corporate credit risk rose as consumer confidence dropped this month and industrial production remained unchanged. Rio Tinto Plc sold $3 billion of bonds in four parts.

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, increased 1.7 basis points to a mid-price of 83.9 basis points at 4:56 p.m. in New York, according to prices compiled by Bloomberg.

Investors concern is mounting that the Federal Reserve will scale back its record stimulus that has held down benchmark interest rates and propelled credit markets since the end of 2008. Fed Chairman Ben S. Bernanke will announce the central bank’s policy on June 19 after the two-day Federal Open Market Committee meeting.

“It reflects the market is a little nervous about going into the new FOMC,” Anthony Valeri, a market strategist in San Diego with LPL Financial Corp., said in a telephone interview. “There’s been a lot of two-way talk about what the Fed will do.”

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. 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.

Consumer Sentiment

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 82.7 this month from a final reading of 84.5 in May, a report showed today. Industrial production remained unchanged last month, according to a Fed report in Washington.

The International Monetary Fund lowered its prediction for 2014 growth in the U.S. to 2.7 percent, from 3 percent projected in April, the IMF staff wrote in its annual assessment of the U.S. economy. It left its forecast for this year unchanged at 1.9 percent.

The risk premium on the Markit CDX North American High Yield Index rose 6.2 basis points to 412.8 basis points, Bloomberg prices show.

Rio Tinto (RIO), the world’s second-biggest mining company, sold $3 billion of bonds in four parts, Bloomberg data show.

The company issued $1.25 billion of 2.25 percent, 5 1/2-year notes to yield 140 basis points more than similar-maturity Treasuries and $1 billion of 1.375 percent, three-year debentures at a 100 basis-point spread, the data show.

Rio Tinto

The company also offered $250 million of two-year floating-rate debt at 55 basis points more than the London interbank offered rate and $500 million of three-year floaters at 84 basis points more than the benchmark.

Proceeds will be used for general corporate purposes, Rio Tinto said today in a regulatory filing. BHP Billiton Ltd. (BHP) is the world’s largest mining company.

The average relative yield on speculative grade, or junk-rated, debt fell 4.1 basis points to 555.9 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: Scott Harrison in New York at sharrison52@bloomberg.net

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

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