U.S. Corporate Credit Swaps Hold; Ford Sells $1 Billion in BondsScott Harrison
A gauge of U.S. corporate credit risk held as central banks pledged to continue stimulus efforts. Ford Motor Co. sold $1 billion in its first 10-year benchmark bond issue since September.
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 0.2 basis point to a mid-price of 74.4 basis points as of 4:23 p.m. in New York, according to prices compiled by Bloomberg. The measure earlier dropped to 73.3 basis points.
The European Central Bank and Bank of England both reaffirmed accommodative policies today to keep borrowing costs low and to spur economic growth. The Federal Reserve said yesterday it will continue to buy $85 billion of bonds a month in an asset-purchase program that’s bolstered credit markets.
“The market has been pretty well comforted by the Fed’s commentary yesterday,” Jon Sablowsky, head of trading at Brownstone Investment Group LLC in New York, said in a telephone interview. The central bank is still “being supportive of the market environment.”
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.
Applications for unemployment insurance payments declined by 19,000 to 326,000 in the week ended July 27, the fewest since January 2008, from a revised 345,000 the prior week, the Labor Department reported today in Washington.
Fed Chairman Ben S. Bernanke told lawmakers July 17 in Washington that the pace of the Fed’s bond buying is “by no means on a preset course” and policy makers would “be responding to the data.”
Ford Motor Credit, a finance unit of the second-largest U.S. automaker, sold $1 billion of 4.375 percent, 10-year notes to yield 178 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.
Celgene Corp. sold $1.5 billion of bonds in three-parts with its first offering in a year. The Summit, New Jersey-based biopharmaceutical company issued $400 million each of 2.3 percent, five-year notes to yield 85 basis points more than benchmarks and 5.25 percent, 30-year debt at a relative yield of 155 basis points, Bloomberg data show. It also sold $700 million of 4 percent, 10-year securities at a 135 basis-point spread.
The average relative yield on investment-grade debt tightened 2.2 basis points to 126.6 basis points, Bloomberg data show.
The risk premium on the Markit CDX North American High Yield Index rose 0.8 basis point to 371.3 basis points, Bloomberg prices show.
The 12-month trailing speculative-grade corporate default rate fell to 2.5 percent in July from 2.6 percent the month prior, Standard & Poor’s analysts led by Diane Vazza said in a report today.
The default rate will increase to 3.3 percent by March 2014, the analysts wrote. Thirty-one companies have defaulted in 2013, compared with 28 through July last year.
The average relative yield on speculative-grade, or junk-rated, debt tightened 9.7 basis points to 547.9 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P.