U.S. Credit Swaps Have First January Rise in 4 Years

A gauge of U.S. corporate credit risk surged this month, the first January increase in four years, amid turmoil in emerging-market nations. Micron Technology Inc. is planning a $500 million bond sale.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, climbed 9.2 basis points for the month to 71.5 basis points, after decreasing 0.2 basis point today as of 4:07 p.m. in New York, according to prices compiled by Bloomberg. The rise for January is the first for that month since 11.2 basis points in 2010.

Investors have lifted the index from a more than six-year low of 62 basis points reached on Dec. 26 as emerging-market currencies declined amid signs China’s economy is slowing, exacerbating concern the global recovery will falter. Federal Reserve policy makers started paring the unprecedented stimulus that’s boosted credit markets.

“This is the first January we’ve seen in a little while where you’ve had a significant blow-off both in the equity markets and in credit,” Michael Kraft, a senior money manager at Vanderbilt Avenue Asset Management in New York, said in a telephone interview. January has “been a little bit weaker than people have expected, and that’s partly due to the emerging markets dragging.”

China Manufacturing

Industry data on China showed manufacturing shrank in January for the first time since July and a Bloomberg customized gauge tracking 20 developing-nation currencies fell this month to its lowest level since 2009, fueling demand for the relative safety of U.S. debt. The Standard & Poor’s 500 Index fell 3.6 percent for the month.

The Fed said this week it will stick to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke’s unprecedented easing policy. It will cut monthly bond purchases to $65 billion from $75 billion.

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.

Micron intends to offer eight-year senior notes next week, according to a person with knowledge of the transaction. Proceeds may be used to repay a portion of its $485 million of 1.875 percent convertible senior notes due in June, said the person who asked not to be identified because terms aren’t set.

Barbie Sales

The cost to protect the debt of Mattel Inc. for five years rose 11.5 basis points to 66.5 basis points at 4:04 p.m. in New York, according to data provider CMA, which is owned by McGraw Hill Financial and compiles prices quoted by dealers in the privately negotiated market. That’s the highest level since April.

The world’s largest toymaker reported fourth-quarter revenue that missed analysts’ projections as sales of its Barbie brand fell. Sales declined 6.3 percent to $2.11 billion, the El Segundo, California-based company said today in a statement. That trailed analysts’ average estimate of $2.37 billion.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 42.5 basis points for the month to 349.7, after increasing by 0.3 today, 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 rose 0.5 basis point for the day to 113.1, Bloomberg data show.

(Corrects month of previous index high in ninth paragraph.)
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