Credit Swaps in U.S. Rise; Citigroup Issues $2 Billion in Bonds

A gauge of U.S. company credit risk increased from the lowest level in almost six years. Citigroup Inc. sold $2 billion of senior 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, rose 0.9 basis point to 72.3 basis points at 5:01 p.m. in New York, according to prices compiled by Bloomberg. The index ended last week at the lowest level since November 2007 in data that adjust for the effects of the market’s shift to a new version of the index in September.

The measure has plunged more than 12 basis points since Oct. 8 amid speculation that a 16-day partial government shutdown did enough damage to the economy to prompt the Federal Reserve to keep bolstering credit markets by maintaining unprecedented stimulus measures until next year.

“As an investor, you feel safe and comfortable buying bonds in this low-rate economy and with tapering being pushed out,” Matthew Duch, who helps oversee $12 billion as a money manager at Bethesda, Maryland-based Calvert Investments Inc., said in a telephone interview.

The swaps index typically climbs as investor confidence deteriorates and falls at 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.

Fiscal Strife

Federal Reserve Bank of Chicago President Charles Evans, an advocate of monetary stimulus, said fiscal strife in Washington will probably delay the central bank’s tapering of its monthly bond purchases. The Federal Open Market Committee will pare its monthly pace of asset buying to $70 billion from $85 billion at its March 18-19 meeting, according to the median of 40 responses in an Oct. 17-18 Bloomberg News survey of economists. The committee is scheduled to begin a two-day meeting on Oct. 29.

“October’s a tough one,” Evans said in a CNBC interview today. “We need a couple of good labor reports, and evidence of increasing growth, GDP growth, and it’s probably going to take a few months to sort that one out.”

Citigroup, the third-biggest U.S. bank, issued 3.875 percent, 10-year securities to yield 130 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The debt is expected to be rated Baa2 by Moody’s Investors Service.

Wells Fargo

Wells Fargo & Co., the largest U.S. mortgage lender, sold $1.5 billion of 2.15 percent senior notes due January 2019 that are expected to be rated A2 by Moody’s, Bloomberg data show. Wells Fargo, based in San Francisco, also issued $2 billion of 5.375 percent, 30-year subordinated debt through its holding company that may be rated A3, the data show.

The ability of speculative-grade companies to manage their cash needs improved this month, according to the Liquidity-Stress Index from Moody’s Investors Service.

The liquidity of high-yield companies in the U.S. improved even as the economy dealt with the debt-ceiling turmoil and a partial shutdown of the government, according to Moody’s, which said yesterday its Liquidity-Stress Index fell to 3.7 percent as of mid-October from 3.8 percent in September.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 3.8 basis points to 348.3 basis points, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries tightened 0.7 basis point to 125 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 1.1 to 650.7.

Investment-grade securities are 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.