Credit Swaps in U.S. Rise as September Bond Issuance Sets Record

A gauge of U.S. company credit risk rose as borrowers including Wal-Mart Stores Inc. and American International Group Inc. helped push issuance of corporate bonds to a monthly record.

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 point to a mid-price of 79.7 basis points as of 3:55 p.m. in New York, according to prices compiled by Bloomberg.

Bond sales this month have exceeded $177.9 billion, surpassing the record $177.3 billion set last September. Issuers are rushing to market in anticipation of the Federal Reserve cutting back its monetary stimulus, which has boosted credit markets.

“You’ve got a ton of new issuances today,” Scott MacDonald, head of research at MC Asset Management Holdings LLC in Stamford, Connecticut, said in a telephone interview. “The spigot has really opened up.”

Yields on corporate debt declined to 4.05 percent yesterday from a 15-month high of 4.37 percent on Sept. 5, according to the Bank of America Merrill Lynch U.S. Corporate & High Yield Index.

The CDS measure typically climbs as investor confidence deteriorates and falls as it improves. 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.

Benchmark Sales

Wal-Mart, the world’s biggest retailer, sold $1.75 billion of five- and 30-year securities, according to data compiled by Bloomberg. AIG, the insurer that paid back a $182.3 billion bailout package last year, sold $1 billion of 10-year securities, according to data compiled by Bloomberg.

Companies in the U.S. have issued about $1.15 trillion in corporate bonds this year, according to data compiled by Bloomberg. A record $1.47 trillion was sold in all of 2012.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 3.1 basis points to 354.3, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 1.2 basis point to 131.7 basis points, Bloomberg data show.

Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- by Standard & Poor’s.