Credit Swaps in U.S. Rise; Goldman Sachs Sells Five-Year Notes

A gauge of U.S. company credit risk rose as signs of an improving economy fueled speculation that the Federal Reserve will reduce stimulus sooner than estimated. Goldman Sachs Group Inc. (GS) sold $1 billion of floating-rate 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, increased 1.5 basis points from Nov. 8 to 73.3 basis points as of 4:24 p.m. in New York, according to prices compiled by Bloomberg. Bond markets were closed yesterday in the U.S. for the Veterans Day holiday.

Treasury yields have climbed to an eight-week high since the Labor Department’s better-than-forecast jobs report last week stoked speculation that the central bank would accelerate its timetable for slowing the pace of its $85 billion in monthly purchases of Treasuries and mortgage bonds. The central bank’s program is becoming riskier by the day, Dallas Fed President Richard Fisher said in a speech in Australia.

“Given the sell-off in Treasuries that started on Friday and has continued to some extent today, the markets are a little on edge on when tapering will take place,” Marc Pinto, the head of corporate bond strategy at Susquehanna International Group LLP, said in a telephone interview from New York.

The swaps index typically rises 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.

‘Tipping Point’

American employers added 204,000 workers in October, topping the most optimistic forecast in a Bloomberg poll of economists, Labor Department figures showed on Nov. 8. The median forecast of 91 economists surveyed by Bloomberg called for a gain of 120,000 jobs, with estimates ranging from increases of 50,000 to 175,000.

The U.S. 10-year yield climbed 2 basis points, or 0.02 percentage point, to 2.77 percent as of 4:24 p.m. in New York from the close on Nov. 8.

The Fed will start cutting its bond buying in March, according to the median estimate of 32 economists in a Bloomberg News survey conducted Nov. 8.

“There’s a tipping point where monetary accommodation comes to be viewed not as the pleasant stimulus that levitates bond and stock and housing markets all over the world,” Fisher said today at an event in Melbourne. “None of us really know where that tipping point is.”

Goldman Bonds

Goldman Sachs, the fifth-largest U.S. bank by assets, sold the five-year, senior unsecured notes to yield 110 basis points more than the three-month London interbank offered rate, according to data compiled by Bloomberg. The debt is expected to be rated A3 by Moody’s Investors Service.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 6.1 basis points from Nov. 8 to 356.7 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 1.4 basis points to 129.2 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 5.5 basis points to 540.6.

High-yield, high-risk, or junk debt is rated below Baa3 by Moody’s and lower than BBB- at 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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