Corporate Credit-Default Swaps in U.S. Climb; ING Sells BondsScott Harrison
A gauge of U.S. corporate credit risk rose for the first time in five days after reaching a two-month low. ING U.S. Inc. issued $400 million in bonds.
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, increased 2.4 basis points to a mid-price of 75 basis points at 4:09 p.m. in New York, according to prices compiled by Bloomberg. The measure fell to as low as 71.8 basis points yesterday, the lowest intraday level since May 23.
Investors are assessing quarterly earnings to determine companies’ abilities to repay debt obligations. Seventy percent of the 130 Standard & Poor’s 500 Index companies that have already reported earnings exceeded analysts’ forecasts, and 52 percent have beaten sales estimates, Bloomberg data show.
“Earnings are still a mixed bag because you haven’t seen as much growth on the revenue side,” Robert Grimm, head of corporate trading at Odeon Capital Group LLC in New York, said in a telephone interview. “Corporations are getting leaner and able to manage their costs. But we still need to see a pickup on the revenue side that comes with sustained economic growth.”
The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. 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.
ING U.S., which is majority-owned by ING Groep NV, the biggest Dutch financial-services company, sold $400 million in 5.7 percent, 30-year senior notes yielding 215 basis points more than similar-maturity Treasuries, according to Bloomberg data.
Proceeds from the bonds, which may be rated Baa3 by Moody’s Investors Service, will be used to pay existing debt and for general corporate purposes, the data show.
The average relative yield on investment grade debt tightened 0.3 basis point to 126.1 basis points, Bloomberg data show.
The risk premium on the Markit CDX North American High Yield Index rose 13.3 basis points to 365.4 basis points, Bloomberg prices show.
Five-year credit swaps tied to the debt of RadioShack Corp. surged 149.6 basis points to 1,574.2 at 3:13 p.m. in New York, as the Fort Worth, Texas-based company posted a second quarter loss of 53 cents a share, below analysts’ estimates of a 24 cent per share loss.
That’s the highest level since Feb. 25 on a closing basis, according to CMA, which is owned by McGraw-Hill Financial and compiles quotes on the privately negotiated market.
The U.S. speculative-grade default rate held in the second quarter, analysts at Moody’s led by Lenny Ajzenman said in a quarterly report.
“Recent market volatility produced a sharp rise in yields and spreads over Treasuries,” Ajzenman said in a statement today. “But we expect only a slight increase in the default rate, to 3.2 percent by November from 2.9 percent at the end of June, before it retreats to 2.6 percent by end-June next year.”
Default rates remain below the historical average of 4.5 percent, Moody’s said.
The average relative yield on speculative-grade, or junk-rated, debt tightened 1.3 basis points to 529.3 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.