Credit Swaps in U.S. Fall; Hilton to Sell $3.25 Billion of Bonds

A gauge of U.S. company credit risk fell for the third straight day as Federal Reserve policymakers begin a two-day meeting. Hilton Worldwide Holdings Inc. plans to sell $3.25 billion of bonds.

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 1.6 basis point to a mid-price of 73 basis points as of 4:22 p.m. in New York, according to prices compiled by Bloomberg. The measure typically falls as investor confidence improves and rises as it deteriorates.

Investors are waiting for the Federal Open Market Committee to decide in its meeting if the central bank will cut back its $85 billion monthly bond-buying program that’s boosted credit markets. A decision on tapering may come as soon as tomorrow, according to Brian Reynolds, chief market strategist for New York-based brokerage firm Rosenblatt Securities Inc.

“Prices have improved in the last few days, but there’s not a lot of price action today,” Reynolds said in a telephone interview. “People are on hold waiting for the Fed.”

The Fed will scale back its bond purchases to $80 billion following its Sept. 17-18 meeting, according to the median estimate of 63 economists surveyed by Bloomberg. The central bank will keep purchases of mortgage-backed securities at the current monthly pace of $40 billion, while cutting Treasury bond purchases to $40 billion per month from $45 billion.

Hilton Worldwide

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.

Hilton will issue $1.25 billion in eight-year senior secured notes and $2 billion of senior unsecured notes due in 2021 and 2023, according to a statement from Standard & Poor’s.

Proceeds will be used to repay debt, according to a Sept. 12 regulatory filing. The world’s largest hotel chain, which filed for an IPO last week, was purchased by Blackstone Group LP (BX) in 2007 for $26 billion, including debt.

Series 21 of the Markit CDX North American Investment Grade Index will begin trading Sept. 20, according to a Markit Group Ltd. statement dated Sept. 11. Assured Guaranty Municipal Corp., Weatherford International Ltd., Avon Products Inc. (AVP) and Genworth Holdings Inc. will be added to the index and SLM Corp., H.J. Heinz Co., Dell Inc. and Genworth Financial Inc. (GNW) will be removed.

Index Roll

New versions of Markit’s indexes are created every six months. Companies in the index are replaced if they no longer hold appropriate grades, aren’t among the most actively traded borrowers or fail to meet other criteria.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 6.8 basis points to 354.6, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.9 basis point to 133 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 0.2 basis point to 599.8.

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

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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