Credit Swaps in U.S. Fall; L Brands Sells $500 Million of Bonds

A gauge of U.S. company credit risk fell the most in almost four months amid signs that lawmakers may reach an agreement to delay a lapse in borrowing authority until next month. L Brands Inc. sold $500 million in 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, decreased 4.6 basis points to 78.7 basis points at 4:25 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest drop for the measure since June 25.

Investor optimism is growing as lawmakers indicate they’re open to a short-term increase in the $16.7 trillion debt ceiling. A resolution on the debt limit may keep the U.S. from defaulting and lead to a break in the impasse over the federal budget.

“From a bond-market perspective, when you have a big argument about something, that means you’re coming closer to a solution,” William Larkin, a fixed-income money manager at Cabot Money Management in Salem, Massachusetts, said in a telephone interview. “The market is starting to believe that it’s unlikely that they’re going to allow a default.”

Earlier today, the White House endorsed a short debt-limit increase with no policy conditions attached, signaling potential support for House Republicans’ plan for a month-long reprieve from a default.

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.

L Brands

L Brands, the Columbus, Ohio-based clothing retailer previously known as Limited Brands, sold 5.625 percent senior unsecured notes due 2023 to yield 293 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

Proceeds from the sale will be used to repay notes due November 2014 and for general corporate purposes, the company said in a statement distributed today by PR Newswire. Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. managed the sale, according to the statement.

Credit risk for Hewlett-Packard Co. declined after Chief Executive Officer Meg Whitman said the Palo Alto, California-based company expects to return more cash to shareholders and revenue to stabilize after a two-year drop.


Five-year swaps tied to the debt of Hewlett-Packard decreased 25.5 basis points to 147 basis points at 4:32 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s the lowest level since Aug. 14.

“I’ve got real confidence that we’re headed in the right direction and we will turn this thing around,” Whitman said at a meeting with analysts in San Jose, California. The company said in a slide presentation that the year-over-year revenue drop “moderates” after fiscal 2013.

The Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 19.5 basis points to 380.3 basis points, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.1 basis point to 132.5 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 1.2 basis points to 657.1.

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

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