Corporate Credit Swaps in U.S. Decline; UnitedHealth Sells Bonds

A gauge of U.S. corporate credit risk fell for the third straight day as Spain kept its investment-grade rating and data signaled housing was recovering in the world’s biggest economy.

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, dropped 2.3 basis points to a mid-price of 89.9 basis points at 4:40 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest closing level since Sept. 19, the day before contracts on a new version of the index started trading. Default swaps tied to Citigroup Inc. fell to the lowest in 15 months.

Moody’s Investors Service maintained a high-grade rating on Spain, citing the European Central Bank’s willingness to buy the nation’s debt, stemming concern that the global economic recovery is faltering and boosting confidence in companies’ ability to repay debt. New-home construction in the U.S. jumped to an 872,000 annual rate in September, the highest level in four years, exceeding all estimates in a Bloomberg survey of economists.

“People are feeling good about risk assets today,” Scott Carmack, a portfolio manager at Leader Capital Corp. in Portland, Oregon, said in a telephone interview. Fear of a “black-swan event out of Europe” is fading, he said. “I think you’re seeing the dissipation of the fear trade.”

Black-swan events are a reference to the once widespread belief in the West that only white swans existed, until European explorers discovered black swans in Australia in 1697.

UnitedHealth, PNC

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.

UnitedHealth Group Inc. sold $2.5 billion in a four-part debt offering to help finance its plan to buy 90 percent of Amil Participacoes SA, Bloomberg data show. The biggest U.S. health insurer issued three-year notes that yield 45 basis points more than similar-maturity Treasuries, five-year debt with a 65 basis-point spread, bonds due February 2023 that pay 95 and 30-year securities with an extra yield of 110 basis points.

Relative Yields

PNC Financial Services Group Inc. sold $1 billion of bonds maturing in 2022, its first offering of 10-year notes in seven months. The seventh-largest U.S. commercial bank by deposits sold the subordinated debt to yield 90 basis points more than similar-maturity Treasuries, Bloomberg data show.

The average relative yield on investment-grade debt narrowed 5 basis points, led by spreads on the subordinated bonds of financial companies which fell 8 basis points. The average relative yield on speculative-grade debt dropped 12 basis points.

The U.S. two-year interest-rate swap spread narrowed to 8.5 basis points, the lowest closing level since September 1993. The measure falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities.

Credit-default swaps tied to Citigroup fell 11.1 basis points to 135.8 basis points, the lowest since July 2011, as of 4:30 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.

Citigroup’s board of directors yesterday replaced Chief Executive Officer Vikram Pandit with Michael Corbat, after concluding Pandit had caused setbacks with regulators and cost credibility with investors, a person with knowledge of the decision said yesterday.

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