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Credit Swaps in U.S. Fall After Retail Sales; Toyota Sells Bonds

A measure of U.S. corporate credit risk fell from an almost four-week high after a stronger-than-forecast retail sales report. Toyota Motor Credit Corp. issued $1.25 billion of five-year debt.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, decreased 1.3 basis points to 64.9 basis points as of 5:22 p.m. in New York, according to prices compiled by Bloomberg. The swaps gauge declined from 66.2 basis points yesterday, the highest level since Dec. 18.

Investors pushed the measure lower after store sales data indicated an improvement in consumer spending, which accounts for almost 70 percent of the economy, bolstering investor confidence in corporations’ ability to repay debts. Retail purchases rose 0.2 percent in December, exceeding the median forecast of 0.1 percent from economists surveyed by Bloomberg, Commerce Department figures showed today in Washington.

“There is an optimistic overhang to this marketplace,” William Larkin, a fixed-income portfolio manager who helps oversee $500 million at Cabot Money Management Inc., said in a telephone interview from Salem, Massachusetts. “The foundation of that is the belief that there’s going to be a robust economic recovery this year.”

Toyota Notes

The swaps measure typically falls as investor confidence improves and rises as it deteriorates. The contracts 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.

Toyota’s U.S. finance unit sold $1 billion of 2.1 percent bonds to yield 48 basis points more than similar-maturity Treasuries and $250 million of floating-rate notes to yield 39 basis points more than the three-month London interbank offered rate, Bloomberg data show. The transaction is expected to be rated Aa3 by Moody’s Investors Service, according to a person with knowledge of the matter who asked not to be identified, citing lack of authorization to speak publicly.

Credit risk of Time Warner Cable Inc. (TWC), the second-largest U.S. cable provider, fell after the company rejected Charter Communications Inc.’s $61 billion takeover offer. The contracts narrowed 7 basis points today to 206.3 basis points, according to prices compiled by Bloomberg. The New York-based company’s default swaps rose 6.6 basis points to 213.2 yesterday, amid concern that the company would be loaded with debt if it were to be acquired.

Deere Offering

Deere & Co. (DE), the largest maker of agricultural equipment, sold $500 million of 1.05 percent, three-year notes to yield 33 basis points more than benchmarks, Bloomberg data show. The bonds, issued through its John Deere Capital unit, may be rated A2 by Moody’s, the data show. Proceeds will be used by the Moline, Illinois-based company for general corporate purposes.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, narrowed 2.3 basis points to 317.3, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at S&P. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 109, Bloomberg data show.

To contact the reporter on this story: Jessica Summers in New York at jsummers20@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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