Credit Swaps in U.S. Fall as Home-Starts Pace Fastest Since 2008

A benchmark gauge of U.S. company debt risk fell the most in more than two weeks after data showed housing starts rose to the fastest pace in almost four years as demand increased in the residential real estate market.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 2.9 basis points to a mid-price of 108.2 basis points at 5:05 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to American Express Co. declined to the lowest level since May, while those on Stanley Black & Decker Inc. jumped to the highest since November.

Improvement in the real estate industry offset retail sales data indicating contraction and may allay investor concerns that the economic recovery is slowing and crimping companies’ ability to repay debt. Builders broke ground on new homes in June at the fastest rate since October 2008, according to data from the Commerce Department today in Washington.

‘You’d had housing at such a low bottom, and I think everybody had gotten such negative expectations built in that even any whisper of strength is viewed pretty well,’’ John Donaldson, director of fixed-income at Radnor, Pennsylvania-based Haverford Trust Co., said in a telephone interview.

Housing Jumps

Housing starts jumped 6.9 percent last month to an annual pace of 760,000, beating the median 745,000 rate called for by 79 economists in a Bloomberg News survey. Applications for building permits, which signal future construction, declined. Retail sales slumped for a third consecutive month in June, data from the Commerce Department showed earlier this week.

The trailing 12-month U.S. default rate on high-yield bonds held at 2.2 percent in June as the distressed-debt exchange of the gaming operator Chukchansi Economic Development Authority brought the year’s default tally to 19, according to a report today from Fitch Ratings.

The industry with the highest default rate in the first half of the year was paper and containers at 7.7 percent, the ratings agency said. Consumer products came in second at 5 percent. Defaults this year have affected $9.9 billion in bonds, according to the report.

High-yield, high-risk, or junk bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s and Fitch.

Increase Dividend

Stanley Black & Decker said it would purchase as much as $1.2 billion of stock and increase its dividend by 20 percent, even as net income for the period fell 21.5 percent from the year-over-year period. Profit in the second-quarter was $154.8 million, according to a statement today from the New Britain, Connecticut-based toolmaker.

The cost to guard against losses on the debt of Stanley Black & Decker rose 20.6 basis points to a mid-price of 98.1 basis points at 5:03 p.m. in New York, Bloomberg prices show. That’s the highest since the contracts closed at 101.4 basis points on Nov. 30.

AmEx, the biggest credit-card issuer by purchases, said net income from continuing operations rose 3.4 percent to $1.34 billion, beating estimates of analysts surveyed by Bloomberg News. Total revenue net of interest expense rose 4.6 percent to $7.97 billion, the New York-based company said today in a statement.

Credit-default swaps tied to AmEx declined 3.2 basis points to a mid-price of 87.4 basis points at 5:18 p.m., Bloomberg prices show. That’s the lowest since the contracts fell to 86.7 basis points on May 14.

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