A gauge of U.S. corporate credit risk fell after housing starts jumped to a four-year high and jobless claims declined.
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, decreased 1.1 basis points to a mid-price of 87.6 basis points at 5:09 p.m. in New York, according to prices compiled by Bloomberg. The measure has declined from 89.6 on Jan. 14, the highest level this month.
Signs that the economy is growing may alleviate investor concern that companies will be unable to repay debt. U.S. housing starts climbed to the most since June 2008, jumping 12.1 percent last month to a 954,000 annual rate, the Commerce Department reported. Initial jobless claims decreased 37,000 to 335,000 in the week ended Jan. 12, the lowest level since the period ended Jan. 19, 2008, Labor Department figures showed.
“Investors are looking at the housing market recovery and the numbers today have moved the needle,” Jody Lurie, a corporate credit analyst at Janney Montgomery Scott LLC, a Philadelphia-based investment advisory firm, said in a telephone interview. “The market direction is a joining of many forces. Banks’ earnings are showing a mixed picture, and that, combined with the economic news, sent ripples in the market.”
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.
The risk premium on the Markit CDX North American High Yield Index fell 5.8 basis points to 440.8 basis points, Bloomberg prices show.
The average relative yield on junk-rated debt narrowed 8 basis points to 4.74 percentage points, led by spreads on the bonds of technology companies, which dropped 16 basis points to 5.16 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.
JPMorgan Chase & Co., which lost more than $6.2 billion from trading lapses, sold $6 billion of fixed- and floating-rate debt in its biggest bond sale in 21 months.
The largest U.S. bank by assets issued $1.25 billion of 1.8 percent, five-year notes to yield 103 basis points more than similar-maturity Treasuries, $2 billion of five-year, floating-rate bonds at 90 basis points more than the London interbank offered rate and $2.75 billion of 3.2 percent, 10-year securities at a relative yield of 133 basis points, according to data compiled by Bloomberg.