U.S. Corporate Credit Swaps Fall; P&G Issues $1 Billion of BondsScott Harrison
A gauge of U.S. corporate credit risk fell as trade growth in China and Germany added to signs of a recovery in the global economy. Companies from Procter & Gamble Co. to Wells Fargo & Co. issued 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, decreased 1.1 basis points to a mid-price of 75.3 basis points at 4:33 p.m. in New York, according to prices compiled by Bloomberg. That’s the measure’s first decline since Aug. 2.
A strengthening economic recovery in Europe will encourage credit investors in the U.S., according to Sharon Stark, a fixed-income strategist at D.A. Davidson & Co. German exports increased 0.6 percent in June from May, when they dropped a revised 2 percent that was less than originally estimated, the Federal Statistics Office in Wiesbaden said today.
“You’re seeing some stability and reversal of trend in the European economies,” Stark said in a telephone interview from St. Petersburg, Florida. “There have been many companies adversely affected by events there and a turnaround will provide for better corporate earnings. While growth in China is still not stellar, it’s not as bad as we feared.”
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.
Chinese shipments overseas climbed 5.1 percent in July from a year earlier after sliding 3.1 percent in June, according to the General Administration of Customs in Beijing. The nation’s sales to the U.S. and the European Union, its biggest markets, advanced for the first time in five months.
Procter & Gamble, the world’s largest consumer-products maker, issued $1 billion of 3.1 percent, 10-year notes to yield 60 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.
The notes, the company’s first issuance in a year, may be rated Aa3 by Moody’s Investors Service, the data show. Proceeds will be used for general corporate purposes, the company said in a regulatory filing today.
Wells Fargo, the largest U.S. home lender, sold $1.5 billion of 4.125 percent, 10-year subordinated notes yielding 160 basis points more than benchmarks, Bloomberg data show.
The default premium on the Markit CDX North American High Yield Index, a measure of speculative-grade corporate debt risk, fell 5.8 basis points to 376.8 basis points, Bloomberg prices show.
The four-week moving average of initial U.S. jobless claims ended Aug. 3 declined to 335,500, the least since November 2007, a Labor Department report showed today in Washington. Compared with a week earlier, claims rose by 5,000 to 333,000, in line with the median forecast of 50 economists surveyed by Bloomberg.
Federal Reserve Bank of Cleveland President Sandra Pianalto said yesterday there has been “meaningful improvement” in the labor market and that tapering of stimulus measures may be warranted if it continues to strengthen. Fed policy makers are weighing data to determine whether the world’s largest economy has improved enough to begin reducing $85 billion in monthly bond purchases.
The average extra relative yield investors demand to hold investment-grade corporate bonds rather than similar-maturity Treasuries tightened 0.1 basis point to 128.3 basis points, Bloomberg data show. The measure for speculative-grade debt declined 1.7 basis points to 567 basis points.
High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.