A gauge of U.S. corporate credit risk held after the biggest weekly rise in seven weeks. Viacom Inc. sold $3 billion of bonds in its biggest offering in about seven years.
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 0.4 basis point to a mid-price of 75.8 basis points at 5:25 p.m. in New York, according to prices compiled by Bloomberg.
The measure added 2.7 basis points last week, the most since the comparable period ended June 21, as four Federal Reserve officials indicated a greater willingness to begin curtailing the pace of the central bank’s $85 billion in monthly bond purchases. Investors are assessing economic data to determine when the Fed will reduce the monetary stimulus that has supported credit markets.
“The clear takeaway from last week’s Fed speak was you had both doves and hawks express a willingness to begin tapering in September,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview.
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.
Dallas Fed President Richard Fisher said last week that it’s timely for policy makers to begin moderating the central bank’s bond buying as the economy continues to improve. Chicago Fed President Charles Evans said he wouldn’t rule out a decision to start dialing back the purchases at the Sept. 17-18 Federal Open Market Committee meeting.
The default premium on the Markit CDX North American High Yield Index, a measure of speculative-grade corporate bond risk, added 2.4 basis points to 381.6 basis points, Bloomberg prices show.
Viacom sold $500 million of 2.5 percent, five-year notes to yield 125 basis points more than similar-maturity Treasuries, and $1.25 billion of 4.25 percent, 10-year bonds at a relative yield of 178 basis points, according to data compiled by Bloomberg. The owner of Paramount film studios also sold $1.25 billion of 5.85 percent, 30-year securities at a 220 basis-point spread, Bloomberg data show. The debt will be used for general corporate purposes.
Prudential Financial Inc., the second-largest U.S. life insurer, raised $1.05 billion in a three-part bond offering. The Newark, New Jersey-based company issued $350 million of 30-year bonds to yield 140 basis points more than similar-maturity Treasuries, Bloomberg data show. The company also sold $350 million each of fixed-and floating-rate notes maturing in 2018.
The fixed 2.3 percent, five-year notes pay 95 basis points more than benchmarks and the floaters yield 78 basis points more than the three-month London interbank offered rate, the data show. Proceeds will be used to repay debt and for general corporate purposes. MetLife Inc. is the largest U.S. life insurance company.
The average extra yield investors demand to hold investment-grade corporate bonds rather than similar-maturity Treasuries tightened 0.5 basis point to 128.5 basis points, according to Bloomberg data. The measure for speculative-grade debt widened 0.9 basis point to 567.8 basis points.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.