Credit Swaps in U.S. Rise; TransCanada Plans Benchmark Offering

A gauge of U.S. company credit risk rose as investors prepare for an economic slowdown from the first partial U.S. government shutdown since 1996. TransCanada Corp. plans to sell bonds in a two-part benchmark offering.

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 0.7 basis point to 80.1 basis points as of 12:11 p.m. in New York, according to prices compiled by Bloomberg.

A two-week continuation of the closure that started yesterday may cut economic growth by 0.3 percentage point to a 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC. A decrease in economic activity makes it tougher for companies to repay debt.

“If the shutdown persists long enough and gets bad enough for the economy, then it will have negative repercussions for the investment-grade index,” Marc Gross, a money manager at RS Investments in New York who oversees $3.5 billion, said in a telephone interview. A long-lasting closedown “will have an effect on everything from corporate earnings all the way to mortgage applications,” he said.

The index typically climbs as investor confidence deteriorates and falls as it improves. 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.

TransCanada Sale

TransCanada, the Calgary-based gas pipeline owner, may issue a benchmark amount of 10-year and 30-year dollar-denominated notes as soon as today, according to a person familiar with the offering. Benchmark sales are typically at least $500 million.

Proceeds from the sale will be used for general corporate purposes and to reduce short-term debt, according to a filing with the U.S. Securities and Exchange Commission.

The notes are expected to be rated A3 by Moody’s Investors Service, said the person, who asked not to be identified because terms aren’t set.

Moody’s Liquidity-Stress Index, which increases as speculative-grade corporations’ ability to manage cash needs worsens, rose to 3.8 percent in September from 3.7 percent in August, according to a research note from Moody’s analysts led by John Puchalla. That’s the highest level for the index since November 2012.

The Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 0.6 basis point to 391.1 basis points, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.3 basis point to 133 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 6.6 basis points to 674.2.

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

Before it's here, it's on the Bloomberg Terminal.