Credit Swaps in U.S. Rise; Citigroup Sells $1.3 Billion in DebtCallie Bost
A gauge of U.S. company credit risk increased as the European Central Bank cut interest rates and U.S. economic growth accelerated. Citigroup Inc. issued $1.3 billion in three-year 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 1.1 basis points to 73.8 basis points at 4:11 p.m. in New York, according to prices compiled by Bloomberg. The benchmark has fallen from a three-week high of 74.5 on Nov. 5.
The index dipped as much as 1.7 basis points earlier after the ECB’s decision to cut its main refinancing rate to a record-low 0.25 percentage point. The swaps measure pared its decline after data showed U.S. third-quarter gross domestic product expanded and consumer credit rose more than expected, adding to speculation that the Federal Reserve may cut back on stimulus in the coming months, according to Adrian Miller, director of fixed-income strategy at GMP Securities LLC in New York.
The index’s decline “was mostly from the knee-jerk reaction to the ECB rate cut, but the swaps are still tied to the Fed by extension,” Miller said in a telephone interview.
Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent increase the prior three months, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance. Consumer credit in September increased to $13.7 billion, the Federal Reserve said today in Washington, more than the median forecast of a $12 billion gain in a Bloomberg survey of economists.
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.
Citigroup, the third-biggest U.S. bank by assets, sold $800 million of 1.3 percent, senior unsecured notes that yield 80 basis points more than similar-maturity Treasuries and $500 million in floating-rate securities that yield 68 basis points more than the three-month London interbank offered rate, according to data compiled by Bloomberg.
MetLife Inc., the largest U.S. life insurer, issued $1 billion of 4.875 percent, senior unsecured 30-year bonds, Bloomberg data show. The debt is rated A3 by Moody’s, according to Bloomberg data.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 7.7 basis points to 359.3 basis points, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries rose 0.5 basis point to 127.7 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 3.2 to 549.9.
Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by Standard & Poor’s.