Credit Swaps in U.S. Fall; Carnival Sells $700 Million in Notes

A gauge of U.S. company credit risk fell as a partial government shutdown stretched into a second week. Carnival Corp. issued $700 million in seven-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, declined 1.1 basis points to 83.4 basis points at 4:32 p.m. in New York, according to prices compiled by Bloomberg.

Investors are waiting for signs of a possible resolution to the federal budget and the debt ceiling impasse. The congressional stalemate may temper optimism over President Barack Obama’s nomination today of Janet Yellen as chairman of the Federal Reserve, Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, wrote in an e-mail.

“Look for any tightening in spreads to be short-lived as the contentious and growing, anxious debt ceiling problem persists,” Miller wrote.

Yellen supported the central bank’s bond buying programs and was a force behind a new strategy adopted in 2012 to commit the Fed to goals on inflation and unemployment.

The swaps index typically falls as investor confidence improves and climbs as it deteriorates. 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.

Carnival Sale

Carnival, the world’s largest cruise-ship operator, sold the 3.95 percent senior unsecured notes to yield 195 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

Proceeds from the sale will be used for general corporate purposes and to repay debt maturing through May 2014, Carnival said in a filing today with the U.S. Securities and Exchange Commission.

The debt is rated Baa1 by Moody’s Investors Service and BBB+ by Standard & Poor’s, Bloomberg data show.

Moody’s Covenant Quality Index for U.S. high-yield bond offerings rose to 4.05 in September, a record for the measure, according to a report yesterday from the ratings company.

The index gauges covenant quality on a five-point scale with 5 signifying the weakest bondholder protection and 1 signifying the strongest.

The Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 5.8 basis points to 400.3 basis points, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries tightened 0.2 basis point to 133.1 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 11.5 to 658.7.

Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by S&P.

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