Credit-Default Swaps in U.S. Rise; Royal Dutch Shell Sells BondsScott Harrison
A gauge of U.S. corporate credit risk rose to an almost two-week high amid concern the Federal Reserve may begin trimming its bond buying later this year. Royal Dutch Shell Plc issued $3.75 billion in bonds in a three-part sale.
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 1.7 basis points to a mid-price of 76.3 basis points at 4:47 p.m. in New York, the highest since July 25, according to prices compiled by Bloomberg.
The swaps index rose yesterday as Chicago Fed President Charles Evans said the U.S. labor market has shown “good improvement” and a reduction in the central bank’s stimulus measures in September is possible. Investors are responding to signs of when the Fed will start reducing its $85 billion monthly asset purchases that have bolstered credit markets.
“There are just a lot of unknowns,” on the timing of tapering, Matthew Duch, a fund manager at Calvert Investments, said in a telephone interview from Bethesda, Maryland. “With a lot of uncertainty, you’re seeing people play it close to the vest before there’s more clarity from the Fed.”
The credit-swaps gauge 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.
Fed Chairman Ben S. Bernanke said July 10 that the U.S. central bank would maintain a “highly accommodative monetary policy for the foreseeable future.” He indicated the month before that officials may begin paring the bond-buying program this year and end it entirely in mid-2014 if the recovery in the world’s largest economy showed sustained improvement.
Royal Dutch Shell issued $1.5 billion of 1.9 percent, five-year notes to yield 55 basis points more than similar-maturity Treasuries and $1 billion of 3.4 percent, 10-year bonds at 83 basis points more than benchmarks, according to data compiled by Bloomberg. The notes, issued through the company’s Shell International Finance unit, are expected to be rated Aa1 by Moody’s Investors Service.
Europe’s largest oil company also sold $1.25 billion of 4.55 percent, 30-year debentures at a spread of 92 basis points. Proceeds will be used for general corporate purposes, according to a regulatory filing.
Moody’s Corp., owner of the second-largest credit rater, issued $500 million of 4.875 percent notes maturing in February 2024 and paying a 235 basis-point spread, Bloomberg data show.
Proceeds will be used for general corporate purposes that may include share buybacks, acquisitions or debt repayment, New York-based Moody’s said in a regulatory filing today. The debt, which initially was marketed as $350 million, may be rated BBB+ by Standard & Poor’s, the largest credit grader, the data show.
The default premium on the Markit CDX North American High Yield Index, a measure of speculative-grade corporate debt risk, rose 11.5 basis points to 382.8 basis points, Bloomberg prices show.
The average extra yield investors demand to own investment-grade corporate debt rather than similar-maturity Treasuries increased 1.4 basis points to 128.7 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt widened 6.4 basis points to 568.9.
High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at S&P.