U.S. Credit Swaps Decline; Microsoft Raises Dollar and Euro Debt

A gauge of U.S. corporate credit risk declined for a fifth straight day as fewer Americans filed first-time claims for unemployment insurance payments last week.

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, dropped 1 basis point to a mid-price of 79 basis points, according to prices compiled by Bloomberg. The measure reached 77.5 basis points earlier, the lowest intraday level since January 12, 2010, when it touched 75.9.

Applications for jobless benefits decreased by 16,000 to 339,000 in the week ended April 20, the lowest since March 9, according to Labor Department data released today in Washington. Economists projected 350,000 claims, according to the median estimate in a Bloomberg survey. An improving employment outlook may ease investor concern that companies will struggle to repay their debts.

“You have a little bit of momentum in the economy now that we certainly didn’t have two years ago,” James Kochan, chief fixed-income strategist at Wells Fargo Asset Management LLC in Menomonee Falls, Wisconsin, said in a telephone interview. “People are pretty comfortable with owning bonds. They’re not as nervous as they were at the beginning of the year.”

Microsoft Bonds

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.

Microsoft Corp., one of four U.S. companies with a top credit rating from Standard & Poor’s and Moody’s Investors Service, sold $2.67 billion of bonds that included its first euro-denominated debt that will pay a record-low coupon.

The world’s largest software maker issued $1 billion of 2.375 percent, 10-year notes to yield 70 basis points more than similar-maturity Treasuries, $500 million of 3.75 percent, 30-year bonds with a relative yield of 90 basis points and $450 million of 1 percent, five-year debt at 32 basis points, Bloomberg data show.

Microsoft also raised 550 million euros ($715 million) with 20-year, 2.625 percent notes, priced to yield 55 basis points more than swaps, the data show.

Proceeds may be used to fund working capital, stock repurchases, acquisitions and debt repayment, Redmond, Washington-based Microsoft said today in separate filings.

Cardinal Swaps

The risk premium on the Markit CDX North American High Yield Index sank 6.3 basis points to 384.1 basis points, its lowest closing level since February 2011, Bloomberg prices show.

The cost to protect against the default of Cardinal Health Inc. fell, poised for its biggest drop in more than two years, as the drug distributor signed new agreements to continue to supply the network of CVS Caremark Corp.’s retail pharmacies and distribution centers.

Five-year credit swaps linked to Cardinal debt decreased 7.2 basis points to a mid-price of 49.8 basis points, according to Bloomberg prices. That’s the biggest decline since January 2009 on a closing basis and means investors are paying the equivalent of $50,700 annually to protect $10 million of debt from losses for five years.

The pact with CVS goes through mid-2016 and includes “essentially the same” stores and centers, the Dublin, Ohio-based company said today in a statement. Its swaps rose to the highest level in more than two years after Cardinal said on March 19 it lost a contract to supply Walgreen Co.’s pharmacies, spurring Standard and Poor’s to put the company’s A- rating on negative watch the next day. Sales to Walgreen generated about 21 percent of Cardinal’s consolidated revenue for fiscal 2012, the company said at the time.

The average relative yield on speculative-grade, or junk-rated, debt tightened 3 basis points to 524.5 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at S&P.

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