A gauge of U.S. corporate credit risk increased for a second day as investors weighed the abilities of central banks worldwide to bolster economic growth.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, rose 2 basis points to a mid-price of 70.9 basis points at 4:14 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest increase in more than a week.
The European Central Bank will refrain from cutting its interest rate again until at least 2015, according to the median of 18 forecasts in a monthly Bloomberg survey of economists, while the Bank of England left its stimulus program unchanged today. In the U.S., applications for unemployment payments decreased by 4,000 to 323,000 in the week ended May 4, the fewest since January 2008, Labor Department figures showed today.
If weekly jobless claims data continue to hold in the current range, “it would suggest private sector job gains in excess of 200,000 per month,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, wrote in an e-mail. If delivered, that would “put in play the Federal Open Market Committee’s September meeting as the point the Fed will announce a cut in buying during the fourth quarter.”
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.
Federal Reserve Bank of Philadelphia President Charles Plosser, speaking in New York today, said the central bank would be ‘‘limited’’ in capability for more stimulus. Plosser, who expects unemployment to fall to 6.5 percent by the end of 2014, also said the unwinding of the Fed’s current stimulus measures would be harder than expected. The Fed will continue unprecedented bond buying until the jobless rate hits that level and the outlook for inflation is less than 2.5 percent, according to a May 1 FOMC statement.
It is “disturbing” that “more and more is being expected of central banks,” Plosser said in an interview with Tom Keene and Sara Eisen on Bloomberg television’s “Surveillance” today. “We are expected to solve all the world’s problems. Our fiscal authorities are not doing a very good job in any country.”
The risk premium on the Markit CDX North American High Yield Index rose 8 basis points to 345 basis points, Bloomberg prices show.
The extra yield investors demand to hold U.S. corporate bonds instead of government debt has tightened to 201 basis points from as high as 896 basis points in 2008, according to Bank of America Merrill Lynch data.
“The labor market is resilient, and it’s doing a lot better than people anticipated,” Marc Gross, a money manager at RS Investments in New York who oversees $3.5 billion in fixed-income funds, said in a telephone interview. “There’s just not a lot of cushion for the extra spread people demand to own corporates over Treasuries, so when rates go up at all, that has people worried.”
Bonds of General Motors Co.’s lending unit rose after the company issued more debt than it had previously forecast with a $2.5 billion offering.
General Motors Financial’s $750 million of 4.25 percent notes due May 2023, which the unit issued at par, traded at 103 cents on the dollar to yield 3.89 percent in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The average relative yield on speculative-grade, or junk-rated, debt tightened 1.3 basis points to 477.1 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.