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Credit Swaps in U.S. End Week at Lowest Since October ’07

A measure of U.S. corporate credit risk ended the week at the lowest level since October 2007 as employers added more jobs than forecast in June.

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, declined about 1.9 basis points to 55 basis points today, according to prices compiled by Bloomberg. The measure has declined 2.6 basis points this week.

Employers added 288,000 jobs in June, pushing the unemployment rate to an almost six-year low of 6.1 percent, figures from the Labor Department showed in Washington today. The job gain beat the median forecast in a Bloomberg survey of economists, which had called for a 215,000 increase. A stronger employment outlook may boost investors’ confidence in a strengthening economy, which would help companies repay their obligations.

“This in theory should be credit-spread positive,” Peter Tchir, head of macro strategy at Brean Capital LLC, said in an e-mailed note after the jobs data. “But my sense is bonds have been getting harder to move, and there could be pressure from retail selling credit if they are nervous about rates (and in the near term they should be).”

Federal Reserve policy makers focus on the job market to help guide the pace at which they’re reducing stimulus. The Federal Open Market Committee’s next meeting is July 29-30.

Oracle Bonds

The swaps gauge 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.

Oracle Corp. (ORCL)’s bonds were the most actively traded dollar-denominated corporate securities by dealers today, accounting for 5.6 percent of the volume of trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Oracle, the world’s largest maker of database software, sold $10 billion of notes Monday in the second-largest dollar-denominated corporate bond offering of the year to help finance its purchase of Micros Systems Inc. The company’s $1 billion of 4.5 percent securities due 2044 fell 0.1 cent to 99.6 cents on the dollar to yield 4.53 percent, Trace data show.

A $12 billion Apple Inc. offering in April was the largest U.S. bond sale this year.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, fell 6.2 basis points to 291.5 basis points, according to prices compiled by Bloomberg. High-yield, high-risk bonds are rated below Baa3 by Moody’s Investors Services and less than BBB- at Standard & Poor’s.

To contact the reporter on this story: Adam Janofsky in New York at ajanofsky4@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Mitchell Martin, Richard Bravo

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