U.S. Bancorp Sells $2.75 Billion of Bonds; Credit Swaps Hold

U.S. Bancorp sold $2.75 billion of bonds after the nation’s largest regional lender reported quarterly profit that beat analysts’ expectations. A measure of corporate credit risk held at about a two-month high.

The bank sold the debt in three parts, including $1.3 billion of 1.1 percent, three-year notes to yield 35 basis points more than similar-maturity Treasuries issued through its U.S. Bank National unit, according to data compiled by Bloomberg.

The Minneapolis-based lender reported fourth-quarter profit rose 2.5 percent to $1.46 billion, or 76 cents a share, from $1.42 billion, or 72 cents a share, last week. The average estimate of 31 analysts surveyed by Bloomberg was 75 cents a share.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, decreased 0.3 basis point to 72.6 basis points at 4:56 p.m. in New York, according to prices compiled by Bloomberg. The measure ended Jan. 24 at 72.9 basis points, the highest level since Nov. 12.

Investors sought protection last week as everything from stocks to emerging-market currencies plunged following a Jan. 23 report signaling weakness in China’s economy, the world’s second-biggest.

“There is a challenge that manifested last week that’s a very tricky one and one that will not be solved quickly or easily,” Edward Marrinan, a macro credit strategist at RBS Securities, said in a telephone interview from Stamford, Connecticut. “It’s likely to be the source of continued episodes of volatility that will challenge investor sentiment.”

U.S. Bancorp

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

U.S. Bancorp also sold $750 million of 3.7 percent, 10-year notes to yield 95 basis points more than benchmarks and a $700 million, three-year floating-rate portion paying 23 basis points more than the three-month London interbank offered rate issued through its U.S. Bank National unit, Bloomberg data show. The securities will be used for general corporate purposes.

The lender agreed Jan. 7 to buy the Chicago branches of Charter One Bank owned by RBS Citizens Financial Group. The bank will seek additional deals, including branch acquisitions, Chief Executive Officer Richard Davis said on a Jan. 22 conference call.

AT&T Bonds

AT&T Inc.’s bonds jumped after the the biggest U.S. phone company said it doesn’t plan to make an offer for Vodafone Group Plc, responding to speculation over a possible takeover bid for the U.K. wireless carrier.

The statement means AT&T can’t offer to buy Vodafone or a stake of 30 percent or more in the company for the next six months, according to U.K. takeover rules. AT&T said it made the announcement today at the request of the U.K. takeover panel.

Dallas-based AT&T’s $3.04 billion of 4.35 percent notes due 2045 rose 0.9 cent to 85.9 cents on the dollar as of 4:30 p.m. in New York, the highest level since Dec. 23, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Fed Meeting

The Federal Reserve begins its two-day policy meeting tomorrow and will cut its $75 billion of monthly bond purchases in $10 billion increments over the next six gatherings before announcing an end to the program no later than December, according to the median forecasts of economists in a Bloomberg survey Jan. 10. The central bank’s monetary stimulus has pushed its balance sheet to $4.1 trillion, from $2.9 trillion at the beginning of last year.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, was little changed at 349.1, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s Investors Service 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 111.6, Bloomberg data show.

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