U.S. Corporate Credit Swaps Fall; Bonanza Creek Plans Debt Sale

A gauge of U.S. corporate credit risk dropped after data showed American manufacturing expanded in March at a smaller rate than the prior period.

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, declined 0.8 basis point to a mid-price of 90 basis points at 4:20 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest on a closing basis since traders moved to a new version of the measure on March 20.

The Institute for Supply Management’s factory index fell to

51.3 from the prior month’s 54.2, the Tempe, Arizona-based group’s figures showed today, while the median forecast of economists surveyed by Bloomberg was 54. A reading of 50 is the dividing line between growth and contraction. Improvement in economic data may alleviate investor concern that companies will struggle to repay debt.

“Manufacturing was a little bit weaker than expected, but generally speaking, the economic numbers are moving in the right direction,” Marc Pinto, head of corporate bond strategy at New York-based Susquehanna International Group LLP, said in a telephone interview.

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.

Bonanza Bonds

Construction spending in the U.S. rose in February as the Commerce Department reported today that outlays climbed 1.2 percent to an $885.1 billion annual rate, after a 2.1 percent drop in January.

Bonanza Creek Energy Inc., an oil and natural gas company, is planning to sell $250 million of eight-year notes, according a person familiar with the offering who asked not to be identified because terms aren’t set.

Proceeds from the notes, which aren’t callable for four years, will be used to repay outstanding borrowings under the Denver-based company’s revolving credit facility. Pricing is expected later this week, the person said.

The risk premium on the Markit CDX North American High Yield Index fell 2.4 basis points to 428.3 basis points, Bloomberg prices show.

Default Rate

The U.S. trailing 12-month, speculative-grade corporate default rate rose in March after five months of declines, according to a report today from Standard & Poor’s.

The default rate increased to 2.4 percent last month from

2.3 percent in February, an expected uptick, according to Diane Vazza, an analyst at S&P. The default rate is projected to increase to 3.4 percent by the end of this year.

The average relative yield on speculative-grade, or junk-rated, debt tightened 0.6 basis point to 502.9 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.