Credit Swaps in U.S. Rise to Five-Week High; Textron Sells Bonds

A measure of U.S. company credit risk climbed to the highest level in more than five weeks after a gauge of China’s manufacturing contracted. Textron Inc. (TXT) sold $600 million of bonds.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, jumped 2.4 basis points to 68 basis points as of 4:40 p.m. in New York, according to prices compiled by Bloomberg. The measure reached the highest level since Dec. 17.

Chinese factory output may contract this month, a private survey showed, as the People’s Bank of China injected more funds to the financial system to help meet increased demand for cash. Signs of a weaker global economy diminish investor confidence that companies will be able to repay debts.

“That kind of put a damper on sentiment,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview. “It’s a general cooling of enthusiasm tied to global manufacturing PMI results today that failed to impress.”

The preliminary reading of 49.6 for a Purchasing Managers’ Index released today by HSBC Holdings Plc and Markit Economics compares with a final figure of 50.5 in December. The median estimate in a Bloomberg News survey of analysts was for a reading of 50.3, above the 50 level which separates expansion from contraction.

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

House Prices

U.S. house prices rose 0.1 percent in November from October, the smallest monthly gain in almost two years, indicating the real estate recovery may be losing strength, the Federal Housing Finance Agency said in a report today.

Textron, the manufacturer of Cessna aircraft, issued $250 million of 3.65 percent, seven-year notes to yield 145 basis points more than similar-maturity Treasuries and $350 million of 4.3 percent, 10-year bonds at a relative yield of 155 basis points, according to data compiled by Bloomberg.

The securities may be rated Baa3 by Moody’s Investors Service, Bloomberg data show. Proceeds will help finance the acquisition of the parent of Beechcraft Corp., according to a regulatory filing.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 9.9 basis points to 329.7, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt rose 2.4 basis points to 109.1, 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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