A gauge of U.S. corporate credit risk fell to the lowest level in a month amid optimism companies will report better-than-forecast earnings. A unit of General Electric Co. issued $3.5 billion in bonds in three 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 1.7 basis points to a mid-price of 81.6 basis points at 5:02 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest closing level since June 7.
Investors are looking to companies’ second-quarter earnings performance to determine their ability to repay debt obligations. Alcoa Inc. (AA), the first member of the Dow Jones Industrial Average to report quarterly results, said yesterday that profit excluding expenses related to output cuts and legal settlements was 7 cents a share, beating the 6-cent average of 15 estimates compiled by Bloomberg.
“The majority of companies likely are going to beat expectations, but companies have been lowering forecasts,” Brian Reynolds, chief market strategist for brokerage firm Rosenblatt Securities Inc. in New York, said in a telephone interview. “Earnings-per-share should beat those expectations even though you won’t have as good a revenue picture.”
Earnings at companies listed on the Standard & Poor’s 500 Index rose 1.8 percent last quarter, down from a projection of 8.3 percent six months ago, according to more than 11,000 analyst estimates compiled by Bloomberg. Lower expectations helped about 73 percent of the companies in the benchmark measure exceed forecasts by an average of 5.1 percent for the first three months of the year, Bloomberg data show.
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.
GE Capital Corp. issued $900 million of floating-rate debt maturing in 2015 to yield 38 basis points more than the London interbank offered rate and $1.35 billion of floaters due in 2016 at a relative yield of 65 basis points, Bloomberg data show. It also sold $1.25 billion of 1.5 percent, three-year notes to yield 83 basis points more than similar-maturity Treasuries.
Fairfield, Connecticut-based GE sold $1.25 billion of floating-rate, two-year notes on Jan. 7 to yield 38 basis points more than Libor, Bloomberg data show.
The risk premium on the Markit CDX North American High Yield Index fell 8.1 basis points to 401.7 basis points, Bloomberg prices show.
The Federal Open Market Committee will release minutes from its June meeting tomorrow, giving investors insight into its future plans for monetary policy.
Federal Reserve Chairman Ben S. Bernanke, who will speak tomorrow, said last month that policy makers may “moderate” their stimulus if the economy shows signs of improvement. The central bank has been making $85 billion in monthly bond purchases, known as quantitative easing.
The average relative yield on speculative-grade, or junk-rated, debt fell 2.4 basis points to 554.3 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.
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