U.S. Credit Swaps Rise; Deutsche Telekom Selling T-Mobile Debt

A gauge of U.S. company credit risk rose to the highest level in more than three weeks as lawmakers began taking tentative steps toward raising the debt ceiling and reopening the government. Deutsche Telekom AG plans to sell $5.6 billion in T-Mobile USA Inc. notes.

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 1.9 basis points to 84.5 basis points at 5:27 p.m. in New York, according to prices compiled by Bloomberg. That’s the highest level since Sept. 13 in data that adjusts for the effects of the market’s shift to a new version of the index last month.

Investors are watching for signs of a resolution in federal budget and debt-ceiling talks nine days before the U.S. runs out of borrowing authority Oct. 17. President Barack Obama said in a speech today that the U.S. economy risks a “very deep recession” if Congress doesn’t raise the limit.

“People are just sitting on the sidelines,” Scott Carmack, a money manager at Leader Capital Corp. in Portland, Oregon, said in a telephone interview. “We had a sell-off yesterday. People bought insurance and today we opened relatively flat.”

Senate Democrats are planning a test vote before the end of this week on a measure that would grant Obama the authority to raise the $16.7 trillion debt ceiling.

The swaps index typically rises 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.

Deutsche Telekom

Deutsche Telekom, which controls T-Mobile, may sell $1.25 billion in 6.542 percent notes due in 2020 and $1.25 billion of 6.731 percent debentures that mature in 2022, according to a person with knowledge of the offering, who asked not to be identified because terms aren’t set.

The company also intends to offer $1.25 billion of 6.464 percent securities due 2019, $1.25 billion in 6.633 percent bonds due 2021 and $600 million of 6.836 percent notes due 2023, according to a regulatory filing today with the U.S. Securities and Exchange Commission.

Default Rate

The debt is part of an $11.2 billion private placement of senior notes T-Mobile issued to Deutsche Telekom in April in relation to its merger with MetroPCS Communications Inc., according to the filing.

Third-quarter defaults by speculative-grade companies fell, according to a report dated yesterday by Moody’s Investors Service.

The trailing 12-month global speculative-grade corporate default rate was 2.8 percent at the end of September, down from 2.9 percent in the second quarter and 3.3 percent a year earlier, according to the ratings company. Moody’s forecasts the global rate to climb to 3 percent by the end of this year.

The Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 8 basis points to 405.9 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 1 basis point to 133.4 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 20.1 to 670.

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

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