Credit Swaps in U.S. Fall; Weekly Bond Sales Reach $37 Billion

A measure of U.S. company credit risk declined as investors watch economic data to gauge when the Federal Reserve will begin reducing monetary stimulus. Debt sales this week more than doubled to $37 billion.

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 0.6 basis point to 71.7 basis points at 5:06 p.m. in New York, according to prices compiled by Bloomberg.

Orders for U.S. equipment such as computers and machinery declined in September for the second time in three months as business spending was weakening ahead of the partial government shutdown. Investors are looking to the Federal Open Market Committee’s Oct. 29-30 meeting for direction on when it will begin cutting back on monthly asset purchases, according to Adrian Miller, director of fixed-income strategies at New York-based GMP Securities LLC.

“The market seems keen to hold tight until next week’s Fed meeting,” Miller wrote in an e-mail. “While the meeting won’t deliver a policy change, it will deliver the current sentiment among FOMC members about the state of the economy.”

Bookings for non-military capital goods excluding aircraft decreased 1.1 percent, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey called for a 1 percent gain.

Bond Sales

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

Bond offerings this week increased from last week’s $17.6 billion and compare with a 2013 weekly average of $29.6 billion, according to data compiled by Bloomberg. Wells Fargo & Co., the largest U.S. mortgage lender, raised $3.5 billion in a two-part issue and Amsterdam-based ABN Amro Bank NV sold $2.5 billion of fixed- and floating-rate bonds.

Yields on bonds from the most creditworthy to the riskiest borrowers in the U.S. fell to 3.88 percent on Oct. 23, the lowest since June 18, before reaching 3.9 percent yesterday, according to Bank of America Merrill Lynch index data. Borrowing costs decreased from 3.95 percent on Oct. 18.

The extra yield investors demand to own corporate bonds rather than government debentures fell to 209 basis points yesterday from 211 basis points, the index data show.

High Yield

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 2.1 basis points to 345.8 basis points, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries rose 0.2 basis point to 125.4 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 0.3 basis point to 671.6.

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

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