U.S. Credit Swaps Rise by Most Since June; IFC Sells 5-Year DebtMary Childs and Matt Robinson
The cost to protect against losses on corporate bonds climbed by the most in more than two months amid concern the U.S. will take military action against Syria. International Finance Corp. issued $3.5 billion of debt.
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 4.4 basis points to a mid-price of 83.9 basis points as of 4:56 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest one-day jump since June 20.
The contracts widened after U.S. Secretary of State John Kerry said yesterday that President Barack Obama believes there must be accountability for the “moral obscenity” of using chemical weapons in Syria, fanning concern unrest may disrupt Middle East oil supplies. The swaps measure typically rises as investor confidence deteriorates and falls as it improves.
“The Syria issue really has people on edge,” William Larkin, a fixed-income manager at Cabot Money Management in Salem, Massachusetts, said in a telephone interview. “The flight to quality is in play.”
Credit swaps 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.
Ten-year Treasuries rose for a fourth day, pushing the yield 8 basis points lower to 2.71 percent, Bloomberg prices show.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 17.8 basis points to 408.1, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 1.4 basis points to 132.2 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt climbed 7.7 to 590.
Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- at Standard & Poor’s.
IFC, an arm of the World Bank Group, raised $3.5 billion of 1.75 percent notes due September 2018, according to data compiled by Bloomberg. The debt may be rated Aaa by Moody’s.