U.S. Company Credit Swaps Pare Decline; Edgen Murray Sells Bonds

A gauge of U.S. corporate credit risk pared an earlier decrease even after a surprise decline in the U.S. unemployment rate.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, rose 0.1 basis point to a mid-price of 95.1 basis points at 4:09 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to a unit of Edison International narrowed to the lowest level since January 2010.

The benchmark reached 93.4 basis points after Labor Department figures showed that the U.S. unemployment rate fell to 7.8 percent in September, down from 8.1 percent in August, allaying concern that the recovery was faltering and boosting confidence in companies’ ability to repay obligations. The country added 114,000 nonfarm jobs, after a revised 142,000 gain in August, fewer than economists estimated.

“The unemployment report helped,” Jon Duensing, head of corporate credit at Smith Breeden Associates, said in a telephone interview from Boulder, Colorado. More significant, he said, is that “the Fed has established that they’re all-in at this point and the ECB is doing what they can to reduce tail risk.”

Quantitative Easing

The Federal Reserve said on Sept. 13 it will expand its holdings of long-term securities in an additional round of so-called quantitative easing. European Central Bank President Mario Draghi said last month policy makers agreed to an unlimited bond-purchase program to regain control of interest rates in the euro area.

The credit-swaps index 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.

Edgen Murray Corp., the U.S. steel distributor, sold $540 million of 8.75 percent, eight-year bonds, Bloomberg data show. Proceeds will be used to refinance the Baton Rouge, Louisiana-company’s debt.

The average relative yield on investment-grade debt declined 2 basis points, led by spreads on the subordinated bonds of financial companies, which narrowed 5 basis points, Bloomberg data show. The average spread on speculative-grade debt decreased 6 basis points, also led by subordinated bonds of financial companies, which fell 9.

High Yield

The risk premium on the Markit CDX North America High Yield Index fell for the third consecutive day, decreasing 0.4 basis point to 485.3 basis points, paring an earlier drop to as low as 473.6 basis points. The measure of speculative-grade companies’ default risk switched to a new version on Sept. 27.

Credit swaps tied to Edison International’s Southern California Edison utility dropped 5.4 basis points to 81.6 basis points at 3:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That’s the lowest level since January 2010. Edison International yesterday announced a plan to restart a unit of a nuclear power plant that has been shuttered since January.