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U.S. Corporate Credit Swaps Hold; AT&T Sells $4 Billion in Bonds

A gauge of U.S. corporate credit risk was little changed after the president of the European Central Bank said economic weakness is expected to continue into 2013 and as jobless claims dropped in the U.S.

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, dropped 0.2 basis point to a mid-price of 97.5 basis points at 4:30 p.m. in New York, according to prices compiled by Bloomberg.

ECB President Mario Draghi said today in Frankfurt that a gradual recovery should start “later in 2013.” The ECB now expects the economy will shrink 0.5 percent this year and cut its 2013 forecast to a contraction of 0.3 percent from 0.5 percent growth, Draghi said. Investors are concerned that a weakening recovery may hinder companies’ ability to repay debt. Jobless claims in the U.S fell by 25,000 in the week ended Dec. 1, Labor Department figures showed today in Washington.

The ECB is “aligning themselves more with the market’s view,” Brian Reynolds, the New York-based chief market strategist for institutional brokerage firm Rosenblatt Securities Inc., said in a telephone interview. “With the jitters over the fiscal cliff and the payroll number on Friday, we have two unknowns that are reasons for people to sit on their hands and not do much.”

Weak activity is expected to extend into 2013, Draghi said today at a press conference after policy makers left the benchmark rate at a record low of 0.75 percent. Risks to the outlook remain on the downside, he said.

Jobless Claims

The ECB lowering forecasts “is in line with low GDP globally,” John Lekas, chief executive officer at Portland, Oregon-based Leader Capital Corp., said in a telephone interview. “Significantly lower growth rates are the big story.”

Fewer Americans than projected filed applications for unemployment benefits last week. Jobless claims decreased to 370,000, below the median forecast of 52 economists surveyed by Bloomberg, which called for a drop to 380,000. Payrolls probably grew by 86,000 in November after rising 171,000 the prior month, according to a Bloomberg survey ahead of Labor Department figures due tomorrow.

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.

AT&T Offering

AT&T Inc., the largest U.S. telephone company, issued $1 billion of 0.8 percent, three-year securities and equal $1.5 billion portions of 1.4 percent, five-year debt and 2.625 percent, 10-year notes, according to data compiled by Bloomberg. The Dallas-based company last sold new dollar-denominated benchmark debt in June, issuing $1.15 billion of 1.7 percent notes due June 2017.

MGM Resorts International is seeking $4 billion in loans and sold $1.25 billion of senior notes to refinance its outstanding obligations. The Las Vegas-based casino operator intends to issue bonds maturing in 2021 to help repurchase senior secured debt and refinance its existing senior credit facility, MGM said today in a regulatory filing. Standard & Poor’s boosted the company’s credit rating to B+ today, four levels below investment grade.

The risk premium on the Markit CDX North American High Yield Index fell 4.7 basis points to 489.5 basis points, according to prices compiled by Bloomberg.

Net Loss

Credit swaps protecting against losses on the debt of H&R Block Inc.’s Block Financial unit fell 45 basis points to 230 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 market.

The biggest U.S. tax preparer reported a loss in the second-quarter of its fiscal year, which ended Oct. 31, smaller than analysts estimated as expenses declined. The net loss was $101 million, or 37 cents a share, compared with $123 million, or 41 cents, a year earlier, the Kansas City, Missouri-based company said today. Excluding some items, the net loss was 37 cents, narrower than the 41-cent loss estimated by six analysts surveyed by Bloomberg.

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