The cost to protect against losses on corporate bonds declined for a second day as a report showed sales of new U.S. homes plunged the most in more than three years. The pace of issuance of high-grade bonds declined.
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 78.7 basis points, according to prices compiled by Bloomberg.
Weaker housing data may reduce concern that the Federal Reserve will cut its monthly bond purchases and other programs that have supported credit markets for years. Sales of newly built homes fell 13.4 percent to a 394,000 annualized pace, the weakest since October, Commerce Department figures showed today in Washington.
“This is a warning sign,” Peter Tchir, founder of hedge-fund adviser TF Market Advisors, wrote in a note to clients today. “We continue to look for slower growth in September.”
The index, which typically falls as investor confidence improves, has declined 2.8 basis points this week, the biggest drop since the period ended July 19.
Credit swaps 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 risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, declined 10.9 basis points to 387.8, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries narrowed 1.6 basis point to 129 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt climbed 10.7 to 578.2.
Sales of corporate bonds in the U.S. fell to $4.45 billion this week, the slowest period in more than a month. Offerings fell from $19.3 billion last week and were the least since $1.3 billion in the five days ended July 5.
Sales of investment-grade notes, which account for the entire portion of bonds sold this week, compare with $14.6 billion last week and a 2013 weekly average of $22.2 billion, Bloomberg data show.
Credit-default swaps tied to Argentina’s debt jumped after a U.S. appeals court upheld a decision forcing the nation to pay holders of defaulted bonds in full. The contracts increased 2.6 percentage points to 48.1 percent upfront at 5:30 p.m. in New York. The nation’s sovereign debt is the most expensive to protect in the world.
Three judges unanimously rejected Argentina’s appeal of a ruling that would force it to pay $1.33 billion to holders of defaulted bonds, led by hedge fund Elliott Management Corp., when it makes payments on its restructured debt. Argentina has vowed never to repay holders of defaulted bonds in full.
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