Credit Swaps in U.S. Reach 16-Week High; Bombardier Delays Debt

A gauge of U.S. corporate credit risk rose to the highest level since July as more Americans than forecast submitted claims for unemployment insurance last week.

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 2.9 basis points to a mid-price of 111.3 basis points at 5:06 p.m. in New York, according to prices compiled by Bloomberg. That’s poised for the highest closing level since 115.4 basis points on July 25.

Weaker-than-expected economic data may heighten investor concern that the recovery will falter, hindering companies’ ability to repay obligations. Applications for jobless benefits surged 78,000 to 439,000 in the week ended Nov. 10, the most since April 2011, the Labor Department said today. That exceeded the 375,000 median estimate of economists in a Bloomberg survey.

“The economic data wasn’t nearly as good as people had hoped,” Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP, said in a telephone interview. “The market is shooting first and asking questions later.”

The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 10.7 in November from 5.7 a month earlier. A reading of zero is the dividing line between expansion and contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. Economists estimated the gauge would decline to 2, according to the median projection in a Bloomberg survey.

Tax Increase

President Barack Obama will meet with congressional leaders tomorrow for an opening round of negotiations regarding a deal to avert $607 billion in automatic tax increases and spending cuts.

The euro-area economy succumbed to a recession for the second time in four years as gross domestic product slipped 0.1 percent in the third quarter after a 0.2 percent drop in the previous three months, the European Union’s statistics office in Luxembourg said today. Unions across the region have protested government budget cuts aimed at narrowing fiscal deficits.

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. 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.

Bombardier Sale

Bombardier Inc., the commercial-aircraft maker whose credit rating was cut yesterday by Standard & Poor’s on lower-than-expected cash generation, is delaying a $1 billion bond offering. The sale was postponed due to market conditions, according to Isabelle Rondeau, a spokeswoman at the Montreal-based company.

The average relative yield on speculative-grade debt climbed 9 basis points to 5.99 percentage points, led by spreads on the bonds of communications companies which widened 16 basis points to 5.95 percentage points, Bloomberg data show.

The risk premium on the Markit CDX North America High Yield Index, a measure of U.S. speculative-grade corporate debt risk, rose 9 basis points to 572 basis points, Bloomberg prices show. That’s the highest intraday level since 583.1 basis points on Aug. 3.


The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, rose 1.5 basis points to 13.3 basis points, the highest since Oct. 8. The measure rises when investors seek the perceived safety of government securities and falls when they favor assets such as corporate bonds.

Credit swaps tied to Archer-Daniels-Midland Co. rose 7 basis points to 100 basis points as of 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 markets.

GrainCorp Ltd., the largest grain handler in eastern Australia, said it will consider any new proposals after rebuffing a A$2.7 billion ($2.8 billion) takeover offer from Decatur, Illinois-based Archer-Daniels.

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