A gauge of U.S. corporate credit risk held as jobless claims in the U.S. unexpectedly dropped to a five-year low.
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, increased 0.1 basis point to a mid-price of 86.6 basis points at 4:34 p.m. in New York, according to prices compiled by Bloomberg.
Signs of improvement in the labor market may relieve investor concern that economic weakness will pressure companies’ ability to repay debt obligations. Applications for unemployment insurance payments decreased by 5,000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008, the Labor Department reported today in Washington. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg survey.
“Although Apple earnings sent some caution yesterday, the job numbers today were positive,” Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $350 billion of assets, said in a telephone interview. “Economic data is helping credit spreads to narrow. Investor sentiment is still more positive than what we had anticipated.”
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.
The cost of protecting Xerox Corp.’s debt from losses for five years fell after earnings of the provider of document and business services beat analyst expectations thanks to a shift away from the traditional printing business.
Profit excluding some items fell to 30 cents a share from 33 cents a year earlier, above the average analyst estimate of 29 cents, the Norwalk, Connecticut-based company said.
Default swaps tied to the company’s debt declined 6 basis points to 208 basis points at 4 p.m. in New York, Bloomberg prices show.
The risk premium on the Markit CDX North American High Yield Index rose 1.4 basis points to 436.5 basis points, Bloomberg prices show.
The average relative yield on junk-rated debt tightened 4 basis points to 4.69 percentage points, led by spreads on bonds of technology companies, which fell 7 basis points to 5 percentage points, Bloomberg data show.