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Credit Swaps in U.S. Rise After Retail Sales Trailed Estimates

A benchmark gauge of U.S. credit risk rose after January sales at the nation’s retailers gained less than economists had estimated.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.8 basis points to a mid-price of 98.5 basis points at 4:44 p.m. in New York, according to Markit Group Ltd. Contracts on Rite Aid Corp. declined as the third-largest U.S. pharmacy chain redeems debt and plans a bond sale to extend maturities.

The swaps gauge increased after an unexpected drop in automobile purchases limited U.S. retail sales to a 0.4 percent gain in January, according to Commerce Department data. That’s half the 0.8 percent that economists on average had forecast in a Bloomberg News survey. The index climbed as much as 3.3 basis points earlier, the biggest intraday increase since Jan. 30.

“Not only were January sales far below expectations, but December’s disappointing numbers were ratcheted down as well,” Peter Tchir, founder of TF Market Advisors in New York, said in an e-mail.

The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, touched 94.1 basis points on Feb. 9, the lowest level since August.

Rite Aid Swaps

Credit-default swaps tied to Camp Hill, Pennsylvania-based Rite Aid declined 55.9 basis points to 708.7, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

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.

Rite Aid offered to buy back its 8.625 percent notes maturing in 2015 in return for cash, according to a statement today. The company, which today sold $481 million of senior notes due in 2020, has $459 million of the 8.625 percent debt outstanding, according to data compiled by Bloomberg.

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