Credit Swaps in U.S. Fall; Coca-Cola Sells $5 Billion of Bonds
A measure of U.S. company credit risk declined as Federal Reserve policy makers began a two-day meeting. Coca-Cola Co. (KO) raised $5 billion in its biggest bond offering ever.
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 0.7 basis point to 71.1 basis points at 5:16 p.m. in New York, according to prices compiled by Bloomberg. The benchmark closed Oct. 22 at 70.1 basis points, the lowest level since November 2007 in data that adjust for the effects of the market’s shift to a new version in September.
The central bank, which concludes the meeting tomorrow, will delay the first reduction in its asset buying until March after a partial government shutdown slowed fourth-quarter growth, according to a Bloomberg News survey of economists. The Federal Open Market Committee’s policy statement may help investors gauge when the Fed will start reducing its $85 billion in monthly bond purchases, which have boosted credit markets.
“Investors are waiting on direction from the Fed rather than committing to one view or another,” Edward Marrinan, a macro credit strategist at Royal Bank of Scotland Group Plc’s securities unit in Stamford, Connecticut, said in a telephone interview.
The swaps index typically falls as investor confidence improves and rises 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.
Coca-Cola issued fixed- and floating-rate debt maturing in three to 10 years in a five-part offering, according to data compiled by Bloomberg. The largest portion was for $1.5 billion of 3.2 percent, 10-year bonds that yield 70 basis points more than similar-maturity Treasuries. Proceeds from the sale, which exceeded a $4.5 billion offering in November 2010, will be used to repay or redeem debt, the Atlanta-based company said in a regulatory filing.
Laboratory Corp. of America Holdings, a clinical testing company based in Burlington, North Carolina, sold $400 million in 2.5 percent, five-year bonds that yield 125 basis points more than similar-maturity Treasuries and $300 million in 4 percent, 10-year notes with a relative yield of 165 basis points.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, declined 1.5 basis points to 345.4 basis points, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries increased 0.5 basis point to 125.8 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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