U.S. Company Credit Swaps Reach 4-Month Low; Verizon Bonds Soar
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, fell 3.6 basis points to a mid-price of 69.6 basis points at 5:25 p.m. in New York, according to prices compiled by Bloomberg.
That’s the lowest intraday level since May 22, when Fed Chairman Ben S. Bernanke said the central bank might begin to reduce the monthly pace of bond buying in the next few meetings if it could be confident of sustained gains in the economy. The bond purchases have bolstered credit markets.
Bonds rallied after the Fed announced that it would maintain its $85 billion pace of monthly debt buying after signs of slow economic improvement. Benchmark 10-year Treasury yields fell 15 basis points, or 0.15 percentage point, to 2.69 percent, according to Bloomberg Bond Trader prices.
“Risk markets have been addicted to monetary stimulus and that’s the general backdrop, which is why stocks rallied and swaps tightened with no tapering and increasingly dovish comments in the Fed statement,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York.
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. The swaps measure typically declines as investor confidence improves and rises as it deteriorates.
Verizon’s $15 billion of 6.55 percent, 30-year debentures rose 2.1 cents to 111.6 cents on the dollar to yield 5.74 percent as of 4:35 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities have climbed from an issue price of 99.88 cents on Sept. 11.
Bonds of the New-York based company were the most actively traded dollar-denominated corporate securities by dealers today, accounting for 10.1 percent of the volume of dealer trades of $1 million or more, Trace data show.
Caesars Entertainment Corp. (CZR), the largest U.S. casino owner, plans to issue $1.35 billion in second-lien notes and $500 million in first-lien debentures, the Las Vegas-based company said today in a regulatory filing.
Proceeds from the sale will be used to refinance commercial mortgage-backed securities and a $450 million senior-secured facility, according to the filing.
Caesars owed $23.5 billion in long-term borrowings as of June 30, according to an Aug. 9 filing. Apollo Global Management LLC and TPG Capital acquired Caesars in 2008 for $30.1 billion and still hold a 70 percent stake.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, decreased 13 basis points to 340.7, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 2.9 basis points to 135.6 basis points, Bloomberg data show.
Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- by Standard & Poor’s.
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