Corporate Credit Swaps in U.S. Decline; Calpine Risk Increases

A gauge of U.S. corporate credit risk fell for a second day as retail sales climbed and industrial production in the euro area increased more than forecast.

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 1.3 basis points to a mid-price of 86 basis points at 5:29 p.m. in New York, according to prices compiled by Bloomberg. The measure reached the least since 85.8 on Jan. 28.

Retail sales in the U.S. climbed 0.1 percent in January, Commerce Department figures showed today in Washington. In Europe, industrial production in the 17-nation currency bloc rose 0.7 percent in December, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.2 percent, according to the median of 41 estimates in a Bloomberg News survey. Signs of an improving economy may ease investor concern that companies’ ability to repay debt will be hindered.

“The U.S. economic data was generally in line with forecasts while Europe had better than anticipated output figures,” Michael Kraft, senior portfolio manager at New York-based Vanderbilt Avenue Asset Management said in a telephone interview. “The European markets were stronger and that spilled over to the U.S. credit and equity markets.”

Calpine Swaps

The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.

The cost of protecting Calpine Corp.’s debt from losses rose after the Houston-based energy company posted a fourth-quarter loss.

Five-year credit-default swaps on the company’s debt increased 27 basis points to 310 basis points as of 3:51 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 risk premium on the Markit CDX North American High Yield Index dropped 4 basis points to 435.1 basis points, Bloomberg prices show.

The average relative yield on speculative-grade or junk-rated debt fell 0.2 basis point to 500.8 basis points, according to Bloomberg data.

High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

Before it's here, it's on the Bloomberg Terminal.