U.S. Corporate Credit Swaps Hold; Occidental Default Risk Eases

A gauge of U.S. company credit risk held as retail sales rose less than forecast in August. The cost to protect the debt of Occidental Petroleum Corp. decreased.

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 0.7 basis point to a mid-price of 77.2 basis points as of 4:17 p.m. in New York, according to prices compiled by Bloomberg. The measure typically falls as investor confidence improves and rises as it deteriorates.

Investors are looking at the strength of the economic recovery to determine when the Federal Reserve will begin tapering its $85 billion of monthly bond purchases, which have boosted credit markets. The Commerce Department reported today in Washington that retail sales increased 0.2 percent last month, lower than the 0.5 percent median forecast in a Bloomberg survey of economists.

“The bond market is a little leery right now,” Matthew Duch, who helps oversee $12 billion as a money manager at Calvert Investments Inc., said in a telephone interview. “You’re juggling the exit from monetary stimulus while juggling the appointment of another Federal Reserve chairman.”

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.

Occidental Sale

Credit risk for Occidental fell after the largest oil producer in the continental U.S. sought to sell a 40 percent stake in its Middle East unit for as much as $8 billion, according to people with knowledge of the matter, who asked not to be named as the talks are private.

Five-year swaps tied to the debt of Occidental decreased 2 basis points to 71 basis points according to data provider CMA, which is owned by McGraw-Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. Earlier the swaps fell as much as 9.5 basis points.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 1.2 basis points to 373.3, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries tightened 0.6 basis point to 132.4 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt tightened 2.5 basis points to 596.2.

Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- by Standard & Poor’s.