U.S. Corporate Credit Swaps Hold After Consumer Confidence Data

A gauge of U.S. company credit risk was little changed as data on consumer confidence increased. High-yield issuers will offer about $700 billion of debt next year, according to JPMorgan Chase & Co. analysts.

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 0.5 basis point to 68.9 basis points at 4:37 p.m. in New York, according to prices compiled by Bloomberg. On Nov. 25, the index fell to 67.99 basis points, the lowest since Nov. 1, 2007.

Investors’ confidence in corporate credit was bolstered by a drop in jobless claims to a two-month low and an unexpected rise in the Thomson Reuters/University of Michigan final index of consumer sentiment in November to 75.1, signaling any cooling in the economic expansion will be short lived.

“Weak durable goods orders were offset by better than expected initial jobless claims,” Gavan Nolan, director of credit research at Markit Group Ltd., said in an e-mailed note. “Investors feel comfortable with the current situation, and mixed U.S. economic data released today did little to change the status quo.”

Orders for durable goods in October decreased 2 percent after a 4.1 percent gain in September, according to a report from the Commerce Department today in Washington. Jobless claims in the week ended Nov. 23 declined 10,000 to 316,000, the Labor Department said today.

Credit swaps, which typically rise when investor confidence deteriorates and fall as it improves, 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.

Risk Premium

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 0.4 basis point to 337.4 basis points.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries fell 0.6 basis point to 126 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 2.7 basis points to 560.7.

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

Junk-rated companies will sell $300 billion in bonds and $400 billion in institutional loans in 2014 with financing costs at historically low levels, JPMorgan analysts Nelson Jantzen and Peter Acciavatti wrote in a note to clients. Use of proceeds will broaden to include more mergers and acquisitions and less refinancing, the analysts wrote.

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