Credit Swaps in U.S. Rise; Caterpillar Sells $1 Billion of Bonds

A gauge of U.S. company credit risk rose for a second day after touching a six-year low. Caterpillar Inc. sold $1 billion of bonds in three parts.

The Markit CDX North American Investment Grade Index, a credit-default swaps measure that investors use to hedge against losses or to speculate on creditworthiness, added 1.2 basis points to 72.6 basis points as of 5:20 p.m. in New York, according to prices compiled by Bloomberg. Yesterday, the gauge touched 69.5 basis points, the lowest level since Nov. 6, 2007, in data that adjust for the effects of the market’s shift to a new version of the index in September.

Traders are awaiting minutes from the Federal Reserve’s Oct. 29-30 policy meeting for clues on when the central bank may start cutting back its monthly asset purchases that have boosted credit markets, according to Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP. The minutes are scheduled to be released tomorrow.

“The general focus today is issuance in the primary market,” Pinto said in a telephone interview from New York. “On the secondary side, volumes are quiet as investors wait for those minutes.”

Issuers have sold or are planning to sell $26.1 billion in bonds this week, marking the busiest start to the period since the week beginning April 29, according to data compiled by Bloomberg.

Issuance Focus

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.

The risk metric began rising yesterday following three days of declines as New York Fed President William C. Dudley said he’s “getting more hopeful” the U.S. economy is gaining strength as the drag from fiscal policy wanes.

The central bank’s policy makers will probably pare the $85 billion monthly amount of bond buying to $70 billion at their March 18-19 meeting, according to the median of 32 estimates in a Bloomberg survey of economists on Nov. 8.

Caterpillar Financial Services Corp., the financial unit of Caterpillar, issued $500 million of 1 percent, three-year notes to yield 45 basis points more than similar-maturity Treasuries, and $250 million each of 10-year bonds and of two-year, floating-rate debentures to yield 12 basis points more than the three-month London interbank offered rate, Bloomberg data show.

Proceeds may be used for general corporate purposes, the data show. The debt is expected to be rated A2 by Moody’s Investors Service, according to a person with knowledge of the offering, who asked not to be identified because terms weren’t set.

Mylan Offering

Mylan Inc., the generic drug-maker acquiring the injectable medicine unit of Strides Arcolab Ltd., issued $2 billion in notes maturing in three, 10 and 30 years, as well as debt due in more than five years, Bloomberg data show.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 3.4 basis points to 353.2 basis points, Bloomberg prices show. A basis point is 0.01 percentage point.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries declined 0.2 basis point to 129.6 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt decreased 1 basis point to 554.4.

High-yield, high-risk, or junk debt is rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s.

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