A measure of U.S. company credit risk held before a Federal Reserve policy meeting begins tomorrow. Altria Group Inc. (MO) is leading dollar-denominated bond offerings of at least $7.8 billion planned today.
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, increased 0.2 basis point to 71.9 basis points at 3:56 p.m. in New York, according to prices compiled by Bloomberg. The benchmark closed Oct. 22 at 70.1 basis points, the lowest level since November 2007 in data that adjust for the effects of the market’s shift to a new version in September.
The index touched the six-year low last week as investors speculated the Fed will maintain $85 billion of monthly bond purchases until next year, continuing record stimulus measures that have bolstered credit markets. As traders await a statement from Fed policy makers at the conclusion of their two-day meeting on Oct. 30, the index may hover at about current levels, according to Dorian Garay, a New York-based money manager at ING Investment Management, which oversees about $230 billion.
Credit spreads have been moving mostly on “the main economic developments, given that the default rate of corporates is low and earnings statements and balance sheets are relatively strong,” Garay said in a telephone interview.
U.S. gross domestic product will expand 1.6 percent this year, compared with 2.8 percent in 2012, according to the median forecast of economists surveyed by Bloomberg.
The swaps index typically climbs as investor confidence deteriorates and falls as it improves. 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.
Altria, the largest cigarette maker in the U.S., sold $1.4 billion of 4 percent, 10-year notes to yield 155 basis points more than similar-maturity Treasuries and $1.8 billion of 5.375 percent, 30-year securities at a relative yield of 175 basis points, Bloomberg data show. The bonds may be rated Baa1 by Moody’s Investors Service.
Proceeds will be used to repurchase as much as $2 billion of notes in a tender offer that the Richmond, Virginia-based company announced today.
Credit risk for Royal Bank of Scotland Plc fell amid market speculation that the lender may complete a restructuring plan that would separate the bank’s toxic assets from the remaining part of its balance sheet by the end of this week, Gavan Nolan, director of credit research at Markit Group Ltd., wrote in a research note.
Five-year, euro-denominated swaps tied to the debt of RBS decreased 6 basis points to 149.5 basis points as of 1:32 p.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.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 0.9 basis point to 347 basis points, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries increased 0.6 basis point to 125.8 basis points, Bloomberg data show.
Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by Standard & Poor’s.
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