A gauge of U.S. corporate credit risk declined after a report showed employers added fewer workers than forecast in July, reducing concern the Federal Reserve will slow the pace of its stimulus measures.
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 1.1 basis points to a mid-price of 73.3 basis points at 11:41 a.m. in New York, according to prices compiled by Bloomberg. It rose to 75.1 before the Labor Department reported payrolls increased by 162,000 in July, compared with the median estimate of 185,000 in a Bloomberg survey.
Investors are looking to economic data for signs of when the Fed will begin paring the $85 billion monthly bond-buying program that has bolstered credit markets. Even as the U.S. jobless rate fell to 7.4 percent, the data suggest the central bank will continue its monetary policy measures, according to Scott MacDonald, head of research at MC Asset Management Holdings LLC.
“We didn’t see as much employment generation as expected,” MacDonald said in a telephone interview from Stamford, Connecticut. “The jobs market is still well away from” the Fed’s jobless target, he said.
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 cost to protect bonds of Dell Inc. (DELL) from default jumped as founder Michael Dell agreed to sweeten his proposal to buy the company to as much as $24.9 billion with a special dividend, according to a statement today from the board committee.
Five-year swaps tied to the debt of the PC-maker widened 54.5 basis points to 405 basis points as of 11:43 a.m. in New York, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted on the privately negotiated market.
Dell and partner Silver Lake Management LLC are offering a dividend of 13 cents a share on top of an already-increased $13.75-a-share bid for the computer maker.
The average relative yield on investment-grade debt widened 2.9 basis points to 129.1 basis points, according to data compiled by Bloomberg.
The risk premium on the Markit CDX North American High Yield Index fell 8.2 basis points to 364.6 basis points, Bloomberg prices show.
Corporate bond sales in the U.S. dropped 42 percent this week to about $22 billion, with issuance falling below this year’s average.
Halliburton Co. (HAL), the world’s largest provider of hydraulic-fracturing services, raised $3 billion to fund share buybacks and Houston-based Kinder Morgan Energy Partners LP (KMP) issued $1.75 billion of debt, leading the slowest week since the period ended July 5, according to data compiled by Bloomberg. Sales compare with $37.9 billion last week and a 2013 weekly average of $29.7 billion.
The average relative yield on speculative-grade, or junk-rated, debt widened 9.6 basis points to 559.7 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.
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