Credit Swaps in U.S. Increase; Wise Metals Sells Five-Year Notes

A gauge of U.S. company credit risk rose from a six-year low as housing data stoked speculation the Federal Reserve may begin cutting back stimulus next month. Wise Metals Group LLC sold $650 million in five-year 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 0.3 basis point to 68.3 basis points as of 3:37 p.m. in New York, according to prices compiled by Bloomberg. The measure dropped yesterday to the lowest level since Nov. 1, 2007.

The S&P Case/Shiller index of property values climbed by the most in more than seven years through September, while the Richmond Fed’s gauge of manufacturing growth exceeded economists’ estimates. Investors are evaluating the data as a signal that the central bank may reduce its $85 billion in monthly asset purchases at its December meeting, according to Scott MacDonald, head of research at Stamford, Connecticut-based MC Asset Management Holdings LLC.

“Stronger-than-expected economic data, mainly in housing, but also manufacturing, do play to concerns about a taper sooner rather than later,” MacDonald wrote in an e-mail.

Building permits increased 6.2 percent in October to a 1.03 million annualized rate, the most since June 2008, after a September pace of 974,000, figures from the Commerce Department showed today in Washington. The median estimate of economists surveyed by Bloomberg was for a 930,000 rate.

Wise Metals

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.

Wise Metals, the Muscle Shoals, Alabama-based aluminum producer, sold 8.75 percent, secured notes due December 2018 that yield 743 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

The debt is rated Caa1 by Moody’s Investors Service, Bloomberg data show. Proceeds may be used to refinance debt and redeem equity interests, according to a person with knowledge of the offering, who asked not to be identified, citing lack of authorization to speak publicly.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 1 basis point to 336 basis points, Bloomberg prices show.

The extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries declined 0.6 basis point to an average 126.9 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt increased 2.2 basis points to 563.8.

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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