A gauge of U.S. corporate credit risk held at almost the highest level this year amid concern that Europe’s debt crisis is worsening and as investors await the State of the Union speech.
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, rose 0.2 basis point to a mid-price of 89.6 basis points at 5:51 p.m. in New York, according to prices compiled by Bloomberg. The index reached 90.3 basis points on Jan. 30, the most since Dec. 31.
Ministers from the 17-member euro area met today in Brussels to discuss aid to Cyprus and Greece. A global slowdown may stoke concern that companies’ ability to repay debt will be hampered. Investors are also awaiting President Barack Obama’s address tomorrow on his legislative priorities.
“The markets seem to be on hold as investors assess the impact of corporate earnings season, mixed economic data and some new signs of euro-area stress,” Edward Marrinan, a macro credit strategist at RBS Securities, said in a telephone interview from Stamford, Connecticut. “Investors want more clarity on these issues before committing their capital.”
The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. Swaps 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.
Obama’s address tomorrow night may be more important than any economic data this week as investors want to know if his second term will be defined by “conciliation or confrontation” with Republicans about the country’s fiscal issues, Marrinan said.
Senate Democrats are close to proposing a $120 billion plan for a 10-month delay in automatic spending cuts that are set to begin March 1, according to a Senate Democratic aide who asked not to be identified.
The risk premium on the Markit CDX North American High Yield Index dropped 4.5 basis points to 444.7 basis points, Bloomberg prices show.
Vodafone Group Plc, the world’s second-largest mobile-phone company, sold $6 billion of bonds in a five-part transaction in the U.S., the largest dollar-denominated issue in more than three weeks, according to data compiled by Bloomberg.
The offering included $1.6 billion of 2.95 percent, 10-year notes that yield 105 basis points more than similar-maturity Treasuries.
The average relative yield on speculative-grade or junk-rated debt widened 1.3 basis points to 502.8 basis points, according to Bloomberg data.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P. A basis point is 0.01 percentage point.