U.S. Credit Swaps Fall; Odebrecht Sells $1.69 Billion in Debt

A gauge of U.S. corporate credit risk declined for the first time in four days. Odebrecht SA sold $1.69 billion in bonds after postponing a June offering.

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, decreased 2.1 basis points to a mid-price of 74.5 basis points as of 4:41 p.m. in New York, according to prices compiled by Bloomberg. The measure advanced 1.9 basis points this week, the first rise since the period ended June 21.

Investors are looking for signs of improvement in the world’s biggest economy to determine when the Federal Reserve will begin to scale back its $85 billion of monthly bond purchases, which have bolstered credit markets. Many are reluctant to take a firm position before next week’s jobs and gross domestic product reports and the Federal Reserve’s policy meeting, according to Noel Hebert, chief investment officer at Concannon Wealth Management LLC in Bethlehem, Pennsylvania.

“We won’t see any real action” until those economic reports and the central bank meeting, Hebert wrote in an e-mail.

Fed Purchases

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 central bank’s bond purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant, Fed Chairman Ben S. Bernanke said on July 17.

The Federal Open Market Committee is scheduled to meet July 30-31. The central bank will trim its monthly bond buying to $65 billion from the current pace of $85 billion, according to a growing number of economists surveyed by Bloomberg News. Half of economists held that view in a July 18-22 survey, up from 44 percent in last month’s poll.

Consumer confidence increased this month to the highest level in six years as Americans’ views of their finances improved.

The Thomson Reuters/University of Michigan final index of consumer sentiment advanced to 85.1 in July from 84.1 at the end of June. Economists in a Bloomberg survey called for 84, according to the median projection after a preliminary reading of 83.9.

Expedia Swaps

The cost to protect the bonds of Expedia Inc. from default climbed to the highest level in a month after the company missed second-quarter sales and profit estimates.

Five-year swaps tied to the debt of the online travel-agency widened 28.2 basis points to 175.2 basis points as of 4:22 p.m. in New York, according to prices compiled by Bloomberg. That’s the highest closing level since June 26.

Net income slumped 32 percent to $71.5 million, or 51 cents a share, from $105.2 million, or 76 cents, a year earlier, Bellevue, Washington-based Expedia said in a statement. Excluding some items, earnings were 64 cents a share. Analysts had estimated 81 cents on average, Bloomberg data show.

The average relative yield on investment-grade bonds widened 0.2 basis point to 127.4 basis points, Bloomberg prices show.

Odebrecht’s debentures yield 6.75 percent and mature in October 2022, Bloomberg data show. The bonds are expected to be rated Baa3 by Moody’s Investors Service.

Bond Sales

The risk premium on the Markit CDX North American High Yield Index dropped 8.1 basis points to 363.4 basis points, Bloomberg prices show.

Company bond sales in the U.S. fell 5.8 percent this week to about $29.5 billion as relative yields widened.

Wells Fargo & Co., the largest U.S. home lender, raised $5 billion in four parts and Purchase, New York-based PepsiCo Inc. issued $1.7 billion as they led offerings that were in line with a 2013 weekly average of $29.3 billion, Bloomberg data show. Sales compare with $31.3 billion in the period ended July 19.

The average relative yield on speculative-grade, or junk-rated, debt widened 5.7 basis points to 550.5 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.

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