A gauge of U.S. corporate credit risk rose after a private report showed American payrolls added fewer workers than estimated last month.
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, added 1.6 basis points to a mid-price of 89.3 basis points at 4:12 p.m. in New York, according to prices compiled by Bloomberg.
The 158,000 increase in employment was the smallest since October, held back by limited hiring in construction, and followed a revised 237,000 gain the prior month, figures from the Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 39 economists surveyed by Bloomberg called for a 200,000 advance.
“We’re in an environment where business activity indicators have softened over the past week and a half, particularly relative to expectations,” Jon Duensing, head of corporate credit at Smith Breeden Associates, said in a telephone interview from Boulder, Colorado. Even so, “the concern around ability for companies to service the debt they have is relatively low right now.”
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.
A unit of Toll Brothers Inc., the largest U.S. luxury-home builder, is planning to sell $300 million of 10-year debt.
Toll Brothers Finance Corp. intends to issue the notes as soon as today, according to a person familiar with the transaction. Proceeds will be used for general corporate purposes, including paying down debt, the Horsham, Pennsylvania-based property developer said in a regulatory filing.
The company’s $419.9 million of 5.875 percent debentures due February 2022 traded at 111.5 cents on the dollar to yield 4.3 percent on March 26, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The risk premium on the Markit CDX North American High Yield Index added 5.5 basis points to 429.6 basis points, Bloomberg prices show. The measure is poised to increase for the first time this week.
The average relative yield on speculative-grade, or junk-rated, debt widened 1.5 basis points to 501.6 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.