U.S. Company Credit Swaps Drop to 3-Year Low; Hertz Sells Debt

A gauge of U.S. corporate credit risk dropped to a three-year low as jobless claims fell last week, adding to signs the labor market is gaining strength.

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

0.6 basis point to a mid-price of 78.4 basis points at 5:07 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest closing level since 75.8 on Jan. 11, 2010.

The number of Americans filing applications for unemployment benefits fell by 10,000 to 332,000 in the week ended March 9, the fewest since mid January, according to Labor Department data today in Washington. The median forecast of 49 economists surveyed by Bloomberg called for an increase to 350,000. Signs the labor market is firming may ease investor concern about companies’ ability to repay debt.

“You have seen some economic improvement, albeit moderate, and there’s still a little momentum there,” Lon Erickson, a Santa Fe, New Mexico-based money manager at Thornburg Investment Management Inc. who oversees about $6 billion of taxable fixed-income assets, said in a telephone interview. “Companies’ balance sheets are still in pretty good shape, and the risk of default is pretty low.”

Hertz Offering

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.

Hertz Corp., a unit of U.S. auto-rental chain Hertz Global Holdings Inc., sold $250 million of 4.25 percent unsecured notes to replenish part of its liquidity after repurchasing stock, according to a company statement. The debt was priced to yield 338 basis points, or 3.38 percentage points, more than similar-maturity Treasuries, according to data compiled by Bloomberg.

The risk premium on the Markit CDX North American High Yield Index dropped 6.9 basis points to 387.8 basis points, the lowest closing level since Feb. 21, 2011, Bloomberg prices show.

Consumer Comfort

The Bloomberg Consumer Comfort Index advanced for a sixth straight week to minus 31.6 in the period ended March 10. A rally in stock prices and an improving employment environment boosted Americans’ view of their finances.

The comfort index can range from 100, indicating every participant surveyed had a positive response about the economy, personal finances and buying climate, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.

The average relative yield on speculative-grade, or junk-rated, debt narrowed 2.3 basis points to 488.7 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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