U.S. Credit Swaps Rise; Sinopec Plans Four-Part Dollar Debt Sale
A gauge of U.S. corporate credit risk advanced as the index of leading indicators dropped for the first time in seven months and as initial jobless claims were little changed last week.
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, added 0.7 basis point to a mid-price of 84.9 basis points at 4:10 p.m. in New York, according to prices compiled by Bloomberg.
The index of U.S. leading indicators unexpectedly declined in March, a sign the world’s largest economy may cool. The Conference Board’s gauge of the outlook for the next three to six months fell 0.1 percent last month after climbing 0.5 percent in the prior two months. The median forecast of economists surveyed by Bloomberg called for a 0.1 percent increase. Investors look to measures of economic health to help determine whether companies will struggle to repay debt.
“The big picture is that the U.S. growth rate remains historically slow,” Brian Reynolds, chief market strategist for brokerage firm Rosenblatt Securities Inc. in New York, said in a telephone interview. “It’s subpar for an economic expansion, and it’s going to remain so.”
The credit-swaps index 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.
Applications for jobless insurance payments increased by 4,000 to 352,000 in the week ended April 13, in line with the median forecast of economists surveyed by Bloomberg.
Sinopec, as the company is known, plans to sell $750 million of three-year bonds to yield 100 basis points more than similar-maturity U.S. Treasuries and $1 billion of five-year debentures at a relative yield of 120 basis points, according to a person familiar with the transaction. It may also sell $1.25 billion of 10-year securities at a 150 basis-point spread and $500 million of 30-year debt at 140, said the person, who asked not to be identified because terms aren’t set.
The risk premium on the Markit CDX North American High Yield Index added 2.6 basis points to 410.4 basis points, Bloomberg prices show.
The average relative yield on speculative-grade, or junk- rated, debt widened 0.7 basis point to 541.6 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.
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