Company Credit Swaps in U.S. Hold as Fed Starts Two-Day Meeting
June 18 (Bloomberg) --A gauge of U.S. corporate credit risk held at about the lowest in a week as investors await a Federal Reserve statement tomorrow for any clues that the central bank may pare unprecedented stimulus efforts.
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 0.4 basis point to a mid-price of 82.3 basis points at 1:18 p.m. in New York, according to prices compiled by Bloomberg.
Credit traders are looking for an indication from the Fed on whether it will maintain $85 billion of monthly bond purchases that have suppressed interest rates and pushed investors into riskier assets including corporate debt. Fed Chairman Ben S. Bernanke will hold a press conference tomorrow after the Federal Open Market Committee ends its two-day meeting and issues a policy statement and economic forecast.
“All eyes are on the Fed statement tomorrow, with people waiting to see if there is any change in the tone of the statement with respect to potential tapering,” Michael Kraft, a money manager at Vanderbilt Avenue Asset Management LLC in New York, said in an e-mail.
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.
Housing starts in May climbed 6.8 percent, less than economists forecast, to a 914,000 annualized rate, according to a Commerce Department report today in Washington. That’s up from a revised 856,000 pace in April. The consumer price index rose 0.1 percent, the Labor Department reported, less than the 0.2 percent median estimate of economists surveyed by Bloomberg.
Mylan Inc. (MYL), the second-biggest generic-drug maker, is offering $1.15 billion of debt in its first bond sale this year. The Canonsburg, Pennsylvania-based company may sell $500 million of three-year securities to yield 135 basis points more than similar-maturity Treasuries and $650 million of five-year notes paying a spread of 160, according to a person with knowledge of the transaction.
Proceeds will be used to repay debt and for general corporate purposes, said the person, who asked not to be identified because terms aren’t set.
The risk premium on the Market CDX North American High Yield Index fell 1.6 basis points to 401.4 basis points, data compiled by Bloomberg show.
The average relative yield on speculative-grade, or junk-rated, debt rose 0.8 basis point to 552.2 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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