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Credit Swaps in U.S. Rise as Factories Slow; Hyundai Sells Bonds

Feb. 3 (Bloomberg) -- A gauge of corporate credit risk rose to the highest level since November as data showed American factories expanded at the weakest pace in eight months. A Hyundai Motor Co. unit sold $1.5 billion of bonds in the U.S.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, climbed 3.1 basis points to 74.4 basis points as of 4:21 p.m. in New York, according to prices compiled by Bloomberg. That’s the highest level since Nov. 5.

The swaps measure rose as manufacturing orders declined by the most since December 1980. The Institute for Supply Management’s factory index decreased to 51.3 in January from 56.5 the prior month, below the median estimate of 56 from economists surveyed by Bloomberg, the Tempe, Arizona-based group’s report showed today.

“Having negative economic data in the U.S. doesn’t bode well,” Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. She said it’s adding to turmoil in emerging markets, which has pushed the CDX index about 10 basis points higher during the past three weeks.

The MSCI Emerging Markets Index fell to a five-month low on concern that global growth will falter.

The swaps gauge 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.

Hyundai Bonds

Growth in Chinese manufacturing fell to a six-month low in January. The Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing.

Automaker Hyundai Motor, based in Seoul, issued $900 million of 1.45 percent, three-year notes to yield 85 basis points more than similar-maturity Treasuries and $600 million of 2.55 percent, five-year securities at 115 basis points more than benchmarks through its Hyundai Capital America unit, according to data compiled by Bloomberg.

Proceeds may be used for general corporate purposes and the securities may be rated Baa1 by Moody’s Investors Service, the data show.

Ford Risk

The cost to protect the debt of Ford Motor Co. for five years rise 10 basis points to 126.5 basis points, 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 highest level since Oct. 9.

The maker of the top-selling pickups in the U.S. for the last 37 years reported declines in January auto sales that were greater than analysts had estimated, as cold weather kept shoppers from dealerships. Ford said sales fell 7.5 percent, which compared with the 2.3 percent drop analysts had forecast, Bloomberg data show.

The trailing 12-month U.S. speculative-grade corporate default rate fell to 1.7 percent in January, the lowest since March 2008, according to estimates by Standard & Poor’s.

The rate, which declined from 2.1 percent in December, will probably increase over the next few months, said Diane Vazza, the head of S&P’s global fixed-income research, in a statement from the credit grader.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 12.8 basis points to 363.1, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt rose 1.3 basis points to 114.6, Bloomberg data show.

To contact the reporter on this story: Jessica Summers in New York at jsummers20@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net

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