U.S. Company Credit Swaps Hold; Pfizer Sells $4 Billion in Bonds

A gauge of U.S. corporate credit risk was little changed as Pfizer Inc. sold $4 billion in bonds, its first debt offering since 2009.

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 0.3 basis point to a mid-price of 75.5 basis points at 4:11 p.m. in New York, according to prices compiled by Bloomberg.

Accommodative Federal Reserve policy in addition to signs of an improving economy may alleviate investor concern that companies will struggle to repay their debts. Consumer confidence is linked to spending, so gains in sentiment may signal that the recovery is gaining traction, according to Matthew Duch, a fund manager at Calvert Investments Inc. in Bethesda, Maryland.

“The Fed definitely wants to increase consumer spending,” Duch said in a telephone interview. “If the consumer feels good, that means gross domestic product growth and the economy are on better footing.”

The Conference Board’s consumer confidence index rose to 76.2 this month, the highest level since February 2008, from a revised 69 in April, data from the New York-based private research group showed today. The median forecast called for an increase to 71.2. The S&P/Case-Shiller index of property values increased 10.9 percent in the year ended in March, the biggest 12-month gain since April 2006, a report showed today.

Swaps Unchanged

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 swaps measure earlier dropped by as much as 3.1 basis points, the biggest intraday decline since May 3, while the Dow Jones Industrial Average jumped 106.29 points to 15,409.39 at 4 p.m. in New York, returning to a record.

“The fact that it did come in to where it’s largely unchanged is an indication that the risk sentiment did not change today despite the equity rally,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview.

Pfizer sold $4 billion of bonds in its first dollar-denominated debt sale since March 2009.

The world’s largest drugmaker issued $1 billion of five-year, fixed-rate securities to yield 50 basis points more than similar-maturity Treasuries and an equal portion of 10-year debt with a relative yield of 87.5 basis points, according to a person with knowledge of the offering who asked not to be identified because terms aren’t set.

‘Strong Demand’

Pfizer’s $750 million of three-year notes had a relative yield of 45 basis points, while an equal amount of 30-year debt priced at 100, according to the person. The company also offered $500 million of five-year, floating-rate notes to yield 30 basis points more than the three-month London interbank offered rate.

“The market is wide open for people,” Calvert’s Duch said. “If you’re a new issuer or an issuer that doesn’t come that often, there’s strong demand and you can get good pricing.”

The risk premium on the Markit CDX North American High Yield Index rose 2.2 basis points to 372.4 basis points, Bloomberg prices show. It earlier fell to 356.9 in the biggest drop since May 3.

The average relative yield on speculative-grade, or junk-rated, debt tightened 8.1 basis points to 484 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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