The cost to protect against losses on corporate bonds was poised to increase for the first time this week as the number of Americans filing for unemployment benefits fell. Kohl’s Corp. (KSS) sold $300 million of notes.
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, rose 0.9 basis point to a mid-price of 83.7 basis points as of 4:22 p.m. in New York, according to prices compiled by Bloomberg. The measure typically climbs as investor confidence deteriorates and falls as it improves.
Investors are looking to economic data to determine when the Federal Reserve will begin tapering its $85 billion in monthly bond purchases, which have boosted credit markets. Jobless claims declined by 9,000 to 323,000 in the week ended Aug. 31, according to Labor Department data issued today in Washington, pushing Treasury yields to a two-year high.
Traders may be anticipating a selloff of benchmark government debt, resulting in an influx of selling pressure, Peter Tchir, founder of hedge-fund adviser TF Market Advisors, wrote in an e-mail. “Everyone is eyeing Treasuries very nervously as a potential for some weakness.”
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.
Benchmark 10-year yields rose 10 basis points, or 0.1 percentage point, to 2.99 percent at 4:43 p.m., the highest level since July 2011, according to Bloomberg Bond Trader data.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 5.6 basis points to 404.3, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.3 basis point to 129.6 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt tightened 6.5 basis points to 572.9.
Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- by Standard & Poor’s.
Kohl’s, the third-largest U.S. retailer, issued $300 million of 4.75 percent notes due 2023 to yield 180 basis points more than similar-maturity Treasuries, Bloomberg data show.
Proceeds from the sale will be used for general corporate purposes, the data show. The securities may be rated Baa1 by Moody’s.
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