A gauge of U.S. corporate credit risk declined for the first time in five days amid growing confidence about the strength of the world’s largest economy.
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 0.9 basis point to a mid-price of 72.7 basis points at 4:16 p.m. in New York, according to prices compiled by Bloomberg. That’s the measure’s first decrease since May 7.
An improvement in labor market conditions warrants the Federal Reserve tapering off its $85 billion-a-month of bond buying, Federal Reserve Bank of Philadelphia President Charles Plosser said today in a speech in Stockholm. David Tepper, co-founder and owner of Appaloosa Management LP, said in an interview on CNBC today that he is still bullish and the economy is getting better.
“There have been some vocal people on the Fed who have been uncomfortable with quantitative easing for some time, and we’ve seen enough decent data for them to make the case that now is the time to begin tapering,” Kathy Jones, a fixed-income strategist at Charles Schwab & Co. in New York, said in a telephone interview. “This is the start of a long-term, gradual signaling.”
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.
Dish Network Corp., the satellite TV company vying with SoftBank Corp. to acquire Sprint Nextel Corp., is offering $2.5 billion of debt to help finance the proposed deal.
The company may sell four- and 10-year bonds today or tomorrow, according to a person familiar with the transaction. Proceeds from the sale will be placed into escrow and would be released to help fund the cash portion of a Sprint acquisition, the Englewood, Colorado-based company said today in a regulatory filing. Dish will redeem the debt if a deal doesn’t materialize, it said.
The offering comes a month after SoftBank sold $3.3 billion of bonds denominated in dollars and euros to help fund its $20.1 billion bid for Sprint, Bloomberg data show.
Credit swaps tied to Dish debt widened 16.8 basis points to a mid-price of 321 basis points at 4:02 p.m., Bloomberg prices show. That’s the biggest jump since April 15 and means it would cost the equivalent of $321,000 annually to protect $10 million of obligations for five years.
The risk premium on the Markit CDX North American High Yield Index declined 3.5 basis points to 351.7 basis points, Bloomberg prices show.
The average relative yield on speculative-grade, or junk-rated, debt tightened 0.4 basis point to 481.2 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.