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U.S. Company Swaps Hold; Kinder Morgan Sells $1.5 Billion Bonds

A measure of U.S. company credit risk held at about the highest in two weeks as business activity in October recorded the biggest monthly increase in three decades. Kinder Morgan Inc. issued $1.5 billion in notes.

The Markit CDX North American Investment Grade Index, a credit-default swaps gauge that investors use to hedge against losses or to speculate on creditworthiness, decreased 0.1 basis point to 72.9 basis points at 5:12 p.m. in New York, according to prices compiled by Bloomberg. The measure ended yesterday at 73 basis points, the highest since Oct. 16.

The MNI Chicago Report business barometer jumped the most this month since July 1983, after the Fed fueled bets yesterday that it may begin to cut stimulus in the coming months. The central bank maintained $85 billion in monthly bond purchases, saying that while the economy shows signs of “underlying strength” it needs to see more evidence of sustainable improvement.

“With the Fed yesterday, everything ramped up and now it’s the usual buy the rumor, sell the fact,” Matthew Duch, who helps oversee $12 billion as a money manager at Bethesda, Maryland-based Calvert Investments Inc., said in a telephone interview. “Credits are pretty stable because they can find liquidity now. There’s a tremendous amount of money being put to work out there.”

The gauge of business activity increased to 65.9 from 55.7 in September, to the index’s highest reading since March 2011. Readings above 50 signal expansion. The measure exceeded the most optimistic estimate in a Bloomberg survey, in which the median projection was 55.

Kinder Morgan

The swaps index typically falls as investor confidence improves and climbs as it deteriorates. 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.

Kinder Morgan, a Houston-based pipeline operator, issued equal $750 million portions of 5 percent notes due February 2021 that yield 306.1 basis points more than Treasuries and 5.625 percent bonds maturing November 2023 that yield an extra 307.3, according to data compiled by Bloomberg. The sale was boosted from an earlier estimate of $1 billion. The debt is rated Ba2 at Moody’s Investors Service, Bloomberg data show.

Santander UK Plc, a unit of Spanish lender Banco Santander SA (SAN), sold $1.5 billion of 5 percent, 10-year subordinated notes that yield 250 basis points more than Treasuries, Bloomberg data show.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, decreased 0.8 basis point to 353.9 basis points, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries rose 0.2 basis point to 124.7 basis points, Bloomberg data show.

Investment-grade debt is rated Baa3 or higher at Moody’s 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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