Credit Swaps in U.S Fall; Verizon Risk Rises Before Record Deal

A gauge of U.S. company credit risk reached the lowest level in more than three weeks as tensions eased over the conflict in Syria. The cost to protect the debt of Verizon Communications Inc. (VZ) rose.

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, fell 0.9 basis point to a mid-price of 78.1 basis points as of 12:01 p.m. in New York, according to prices compiled by Bloomberg.

The index earlier declined to 76.6 basis points, the lowest intraday level since Aug. 15, as Russia urged Syria to turn over its arsenal of chemical weapons, a plan that may offer a diplomatic resolution and avoid a U.S. military strike.

“Treasuries are softening and corporate bonds are softening a lot with them because people don’t need safety with the Syrian conflict seeing some sort of solution,” William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Massachusetts, said in a telephone interview.

Credit swaps, which typically decrease as investor confidence improves and climb as it deteriorates, 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.

Verizon Offering

Credit risk linked to Verizon debt rose as the company prepared to sell as much as $50 billion in bonds, including an initial offering that may exceed Apple Inc.’s record $17 billion sale in April.

Five-year credit swaps tied to the debt of Verizon rose 3.5 basis points to 101 basis points as of 11:54 a.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s the highest level on a closing basis since July 2010.

The New York-based company may sell eight portions of dollar-denominated bonds to help purchase Vodafone Group Plc (VOD)’s stake in Verizon Wireless in a $130 billion transaction, according to a person with knowledge of the offering, who asked not to be identified because they weren’t authorized to speak publicly.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 8.3 basis points to 373.8, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.2 basis point to 132.7 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 0.1 basis point to 600.3

Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- by Standard & Poor’s.

To contact the reporter on this story: Callie Bost in New York at cbost2@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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