Yum Swaps Drop as Profit Beats Estimates; JPMorgan Issues Debt

The cost to protect the debt of Yum! Brands Inc. dropped as sales at Taco Bell, home of Doritos Locos Tacos, helped the dining-chain owner top analysts’ first-quarter profit estimates.

Five-year credit-default swaps on debt tied to Yum, which also operates the Pizza Hut and KFC brands, fell 6 basis points to a mid-price of 69.9 basis points, according to prices compiled by Bloomberg. That means investors are paying the equivalent of $69,900 annually to protect $10 million of debt from losses for five years.

Yum posted adjusted profit of 70 cents a share, while analysts estimated 60 cents, based on the average of 25 projections compiled by Bloomberg. Sales at Taco Bell’s U.S. stores open at least 12 months rose 6 percent in the quarter, offsetting 1 percent declines at both Pizza Hut and KFC, the Louisville, Kentucky-based company said yesterday in a statement.

Yum does not presently plan to add debt so that it can maintain its investment-grade ratings, according to a transcript of its earnings call. The shares jumped 7 percent to $68.65 in New York, their biggest increase since Oct. 10.

Durable Goods

A gauge of U.S. corporate credit risk fell as durable-goods orders fell in March by the most in seven months while shipments rose.

The Markit CDX North American Investment Grade Index, a credit swaps benchmark used to hedge against losses or to speculate on creditworthiness, declined 0.7 basis point to a mid-price of 80 basis points, Bloomberg prices show.

Bookings for goods meant to last at least three years fell 5.7 percent last month after a revised 4.3 percent gain in February that was smaller than previously estimated, the Commerce Department reported today in Washington. The median forecast of 78 economists surveyed by Bloomberg called for a 3 percent decline.

Shipments of non-defense capital goods excluding aircraft, a measure that’s used in calculating gross domestic product, climbed 0.3 percent after advancing 1.2 percent in February. Total shipments of durable goods rose 0.4 percent in March, building on a 0.7 percent rise the month before.

Risk Premium

“It wasn’t a very good report on the surface, but when you look at the shipment side of it, things were actually OK,” Andrew Wilkinson, chief economic strategist for Miller Tabak & Co. in New York, said in a telephone interview. “The bigger question following the report is how much of the headline weakness is accounted for by international concerns as opposed to domestic worries.”

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 risk premium on the Markit CDX North American High Yield Index dropped 4 basis points to 390 basis points, Bloomberg prices show.

JPMorgan Chase & Co., the largest U.S. bank by assets, sold $2 billion of 10-year subordinated debt. The bank issued the 3.375 percent notes due May 2023 to yield 175 basis points more than similar-maturity Treasuries, Bloomberg data show. They may be rated A3 by Moody’s Investors Service, said a person familiar with the offering, who asked not to be identified because the terms weren’t set at the time.

Default Rate

The U.S. high-yield trailing 12-month default rate fell to 1.6 percent in March, down from 1.9 percent at the end of last year, according a Fitch Ratings report. The credit grader predicts that the rate will increase to about 2 percent in the second quarter.

A bankruptcy by Energy Future Holdings Corp., Texas’s biggest electricity producer that has struggled amid low natural gas prices, would push the default rate to an estimated 3.5 percent, Fitch said in the report.

“While Energy Future’s troubles are well documented, the rate would nonetheless hit a three-year high,” the ratings company said in the report.

The average relative yield on speculative-grade, or junk-rated, debt tightened 3.1 basis points to 527.7 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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