Credit Swaps in U.S. Fall Before Fed Meets; Chevron Offers Bonds

A gauge of U.S. corporate credit risk fell as stocks advanced before this week’s Federal Reserve policy meeting. Chevron Corp. is offering $6 billion of debt 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, decreased 1.9 basis points to a mid-price of 82.2 basis points at 4:42 p.m. in New York, according to prices compiled by Bloomberg. The index has dropped from a more than two-month high of 87.5 on June 12.

Traders are trying to determine when the Fed will scale back $85 billion of monthly bond purchases, known as quantitative easing, that have suppressed benchmark yields and pushed investors into riskier assets such as corporate bonds. Fed Chairman Ben S. Bernanke is scheduled to speak after the central bank’s decision on June 19.

The 10-year Treasury note’s yield has fallen to 2.18 percent from a 14-month high of 2.23 percent on June 12.

“The market is generally feeling better about rates stabilizing a bit and that Ben Bernanke will not pare back QE,” Scott Carmack, co-portfolio manager at Leader Capital Corp. in Portland, Oregon, said 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.

Chevron Issue

Chevron (CVX), the second-largest U.S. oil company by market value, may sell $750 million of three-year notes to yield 40 basis points more than similar-maturity Treasuries, $2 billion of five-year securities at a relative yield of 65 basis points, $1 billion of seven-year debt at a 85 basis-point spread and $2.25 billion of 10-year bonds at 100, according to a person with knowledge of the transaction, who asked not to be identified because terms aren’t set. Proceeds will be used to refinance commercial paper.

The company canceled plans to offer floating-rate notes due in 2016 and 2018.

The risk premium on the Markit CDX North American High Yield Index fell 11.1 basis points to 402.4 basis points, Bloomberg data show.

The average relative yield on speculative-grade, or junk-rated, debt fell 4.3 basis points to 551.7 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P. The Standard & Poor’s 500 (SPX) Index gained 0.8 percent.

“Credit is tracking the equity market in general,” Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, said in a telephone interview. “I think everybody agrees the Fed will be on hold. It’s more the timing when the Fed takes the foot off the pedal.”

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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