The cost to protect against losses on corporate bonds climbed after Secretary of State John Kerry said the president will hold Syria’s government accountable for using chemical weapons. International Finance Corp. plans to issue five-year notes.
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 0.8 basis points to a mid-price of 79.5 basis points as of 5:49 p.m. in New York, according to prices compiled by Bloomberg. The index typically rises as investor confidence deteriorates.
The measure was down as much as 0.7 basis point earlier before Kerry said President Barack Obama will make an “informed decision” and hold Syria’s government accountable for the “moral obscenity” of using chemical weapons against its people. Economic data this morning showed durable goods orders in the U.S. fell in July for the first month since March, triggering speculation the Federal Reserve will not commit to a large-scale reduction in stimulus efforts.
Credit 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.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 2.6 basis points to 390.4, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 2.9 basis point to 131.2 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt climbed 4.7 to 583.1.
Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- at Standard & Poor’s.
The new bonds from IFC, an arm of the World Bank Group, may be sold tomorrow and may be rated Aaa at Moody’s and AAA at S&P, according to person familiar with the offering, who asked not to be identified because terms aren’t set.