Ally Financial Sells $750 Million of Bonds; Credit Swaps Hold

Ally Financial Inc. sold $750 million of five-year bonds as the U.S. Treasury Department moves closer to exiting its bailout of the auto lender. A gauge of corporate credit risk held at the highest level in about a week.

Ally issued 3.5 percent notes that may be rated B1 by Moody’s Investors Service, to yield 200.6 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds will be used by the Detroit-based company to repay debt and for general corporate purposes.

The Treasury sold about $3 billion of common stock of Ally in a private transaction last week. The sale reduced taxpayers’ stake to 37 percent, the agency said in a statement. The deal leaves the government with about 572,000 shares, and the U.S. will explore ways to reduce its investment that could include a public offering or another private sale.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, increased 0.3 basis point to 65.6 basis points as of 5:20 p.m. in New York, according to prices compiled by Bloomberg. That would be the highest closing level since reaching 66.2 on Jan. 13.

The gauge was little changed as investors gird for the Federal Open Market Committee’s Jan. 28-29 meeting, the first since it announced plans on Dec. 18 to reduce monthly bond purchases to $75 billion from $85 billion.

Fed Stimulus

The Federal Reserve’s policy-setting arm will further trim the stimulus by $10 billion at each meeting before ending the program in December, according to a Bloomberg survey of economists taken Jan. 10.

“When we get close to the Federal Reserve meetings as of late, it seems that people are a little bit concerned of what the pace of the taper will be,” Jon Sablowsky, head of trading at Brownstone Investment Group LLC in New York, said in a telephone interview.

The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. The contracts 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.

Ally won Fed approval last month to convert to financial holding company status as it seeks to retain an insurance unit and SmartAuction website for dealers. Ally, known as General Motors Acceptance Corp. when it was the captive-finance arm of the automaker that’s now called General Motors Co., won Fed approval to become a bank holding company in December 2008. The change enabled it to tap a U.S. rescue that swelled to $17.2 billion.

Liquidity Stress

Moody’s Liquidity-Stress Index climbed to 4.4 percent in mid-January from 4.2 percent in December, indicating few U.S. speculative-grade companies are experiencing liquidity problems, Moody’s analysts wrote in a report today. That’s below the long-term average of 7.1 percent and its March 2009 peak of 20.9 percent. Upgrades and downgrades of Moody’s speculative-grade liquidity ratings were even, at three apiece, during the first half of January, according to the report.

“Continued low interest rates, slow but steady economic growth and a favorable maturity schedule all point to solid liquidity for speculative-grade companies in the coming year,” Moody’s lead analyst John Puchalla wrote in the report. “They also support our view that the default rate will remain at historically low levels.”

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 0.6 basis point to 319.6, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 107.2, Bloomberg data show.

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