A gauge of U.S. company credit risk fell as a report showed fewer workers were added to payrolls last month than projected, indicating to investors that the Federal Reserve would be slow to reduce its stimulus. SunTrust Banks Inc. sold $750 million in debt after increasing the offering’s size.
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, declined 2.3 basis points to a mid-price of 70.1 basis points, according to prices compiled by Bloomberg.
The index fell, signaling improving investor confidence in corporate creditworthiness, as investors focused on Fed policy rather than the economic implications of the September employment data. There were 148,000 worker additions last month, compared with a Bloomberg survey of 93 economists that forecast 180,000. Unemployment dropped to 7.2 percent, the lowest level since November 2008.
“The jobs report is weak enough whereby it’s more ammunition for the Fed to hold off on tapering until 2014,” Marc Pinto, the head of corporate bond strategy at bond-broker Susquehanna International Group LLP, said in a telephone interview. “The longer the Fed has held off on tapering, the more that has had a positive influence on credit spreads.”
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.
SunTrust sold 2.35 percent, five-year notes at 108 basis points more than similar-maturity government debt, according to data compiled by Bloomberg. The sale was earlier set at $500 million.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, declined 7.9 basis points to a mid-price of 340.4 basis points, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.4 basis point to 125.4 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt added 3.9 basis points to 653.6.
High-yield, high-risk securities are rated lower than Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.
Sales of high-grade corporate debt will fall a “meaningful” 15 percent to $840 billion next year, from about $976 billion in 2013, as interest rates rise, Bank of America Merrill Lynch credit strategists Hans Mikkelsen and Yuriy Shchuchinov wrote in an Oct. 21 note to clients.
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