A gauge of U.S. corporate credit risk ended the week little changed as President Barack Obama and congressional leaders continue to negotiate an agreement on the federal budget.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, fell 0.5 basis point to a mid-price of 98.6 basis points since Nov. 23, according to prices compiled by Bloomberg. The index fell 1.1 basis points in November, the fifth decline in six months.
The gauge reached a 16-week high of 113 basis points on Nov. 15 as investors grew concerned that lawmakers are running out of time to strike a compromise to avert the so-called fiscal cliff of reduced spending and higher taxes set to take effect next year. Congressional Republicans rejected the Obama administration’s budget proposal to trade $1.6 trillion in tax increases for $400 billion in unspecified spending cuts.
“All the often-conflicting rhetoric coming out of Washington lends itself to an environment where you’re going to have spreads oscillate,” Adrian Miller, a fixed-income strategist at GMP Securities LLC in New York, said in a telephone interview.
House Speaker John Boehner said that lawmakers were “almost nowhere” closer to coming to an agreement. Boehner, speaking at a press conference today in Washington, said Obama’s plan was not a serious offer and that “real spending cuts” were needed in order to reach a compromise.
Spending by U.S. consumers unexpectedly fell in October as superstorm Sandy kept those in the Northeast from shopping at malls and car dealerships. Purchases dropped 0.2 percent, the weakest reading since May, Commerce Department figures showed today in Washington. The median estimate of economists in a Bloomberg survey called for no change in so-called nominal sales.
The credit-swaps index, which reached the lowest in more than two weeks on Nov. 23, 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.
GulfMark Offshore Inc. sold an additional $200 million of its 6.375 percent notes maturing in March 2022, after issuing $300 million of the debt eight months ago, according to data compiled by Bloomberg. The Houston-based company plans to use the proceeds to repay existing credit facilities and to fund vessel construction costs.
The average relative yield on junk-rated debt narrowed 4 basis points to 5.78 percentage points today, led by spreads on the bonds of utility companies, which dropped 8 basis points to 13.3 percentage points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.
The risk premium on the Markit CDX North American High Yield Index fell 10.6 basis points this week to an almost six-week low of 500 basis points, according to prices compiled by Bloomberg.
The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, fell 1.1 basis points to 11.94 basis points this week. The spread typically narrows when investors favor assets such as corporate bonds and widens when they seek the perceived safety of government securities.
Credit swaps protecting against losses on the debt of Yum! Brands Inc. rose 5.6 basis points to 61.1 basis points today, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
The owner of the Taco Bell and KFC fast-food chains said same-store sales in China will decline 4 percent in the fourth quarter, compared with a 21 percent increase a year earlier. China, which accounted for 44 percent of the Louisville, Kentucky-based company’s revenue last year, is grappling with an economy where growth has slowed for seven quarters.