U.S. Corporate Credit Swaps Rise; BofA Sells $6 Billion in Bonds

A gauge of U.S. corporate credit risk advanced for the first time in three days as the corporate-earnings season began.

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, climbed 0.7 basis point to a mid-price of 85.6 basis points at 4:39 p.m. in New York, according to prices compiled by Bloomberg.

The measure was as low as 84.3 basis points earlier as an index of economic confidence in the euro region rose for a second month to 87 in December from 85.7, the European Commission in Brussels said today, exceeding the 86.3 median of 24 estimates in a Bloomberg News survey. Alcoa Inc. kicked off the earnings season after the market close, reporting earnings of 6 cents per share, excluding a gain on the sale of a power plant and other one-time items, matching the average of 20 estimates compiled by Bloomberg.

“A lot of eyes will be on Alcoa,” Mark Pibl, head of credit strategy at Cortview Capital Securities LLC, said in a telephone interview from New York. “It’s not so much about what fourth-quarter earnings are, but more about what the year ahead is going to look like; that’s what we’re listening for, and that starts today.”

Sales of the largest U.S. aluminum producer fell to $5.9 billion in the last quarter, beating the $5.6 billion average of 11 estimates. Alcoa’s conference call about the results was scheduled for 5 p.m. New York time.

Earnings Growth

Analysts are predicting a 2.9 percent growth in fourth-quarter earnings per share for companies in the Standard & Poor’s 500 Index, data compiled by Bloomberg show. Profit in financial companies is expected to rise 17.9 percent in the quarter, the data show.

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.

Bank of America Corp., the second-biggest U.S. lender by assets, sold $6 billion of bonds in a three-part offering. The lender issued $1 billion of 1.25 percent, three-year debt to yield 95 basis points more than similar-maturity Treasuries, $2 billion of 2 percent, five-year securities at a relative yield of 125 basis points and $3 billion of 3.3 percent, 10-year notes to yield 150 basis points more than benchmarks, Bloomberg data show.

High Yield

The average relative yield on junk-rated debt was 1 basis point wider at 4.86 percentage points today, with the spreads on the bonds of utility companies advancing 12 basis points to 9.44 percentage points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The risk premium on the Markit CDX North American High Yield Index rose 3.4 basis points to 443.8 basis points, Bloomberg prices show.

Credit swaps protecting against losses on the debt of Yum! Brands Inc. rose 4.3 basis points to 70.2 basis points as of 3:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The owner of the Taco Bell and KFC chains said fourth-quarter same-store sales fell 6 percent in China, more than the previous estimate of a 4 percent decline, after a government probe into one of its former suppliers hurt demand. KFC sales in the country in the last two weeks of December had a “significant impact” from “adverse publicity associated with a government review of China poultry supply,” the Louisville, Kentucky-based Yum said in a filing with the U.S. Securities and Exchange Commission yesterday.

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