Bloomberg News

Corporate Credit Swaps in U.S. Rise; Oracle Issues Two-Part Debt

October 18, 2012

A gauge of U.S. corporate credit risk rose for the first time in six days after more Americans than expected filed for unemployment benefits.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, added 1.3 basis points to a mid-price of 91 basis points at 4:58 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Murphy Oil Corp. rose to the highest in more than nine months.

U.S. initial jobless claims increased to 388,000 in the week ended Oct. 13, up from a revised 342,000 in the prior period, and more than the 365,000 median estimate of economists surveyed by Bloomberg, Labor Department figures showed today in Washington. Signs that the labor market is struggling to recover may deepen concern that companies will have difficulty meeting their debt obligations.

“It’s a mixed picture in indicators,” Dorian Garay, a money manager for a global, investment-grade debt fund at ING Investment Management, said in a telephone interview. “It’s more a technical correction in the market after a very large rally.”

The Federal Reserve Bank of Philadelphia’s general economic index rose to 5.7 this month from minus 1.9 in September, a report today showed, exceeding the median estimate of 1 in a Bloomberg survey. A reading of zero is the dividing line between expansion and contraction

Oracle Offering

The credit-swaps index 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.

Oracle Corp. (ORCL:US), the world’s largest supplier of database software, issued $5 billion of bonds in a two-part offering, its first in more than two years. The company sold $2.5 billion of five-year debt to yield 45 basis points more than similar- maturity Treasuries and an equal amount of 10-year securities with 68 basis points of extra yield, according to data compiled by Bloomberg.

Liquidity Stress

Bank of New York Mellon Corp. (BK:US), the world’s largest custodian, sold $1.5 billion of bonds in a three-part offering after reporting better-than-expected earnings yesterday. The bank issued $600 million of three-year, fixed-rate notes to yield 33 basis points more than Treasuries, $500 million of securities due January 2018 at a spread of 55 basis points, and $400 million of three-year floating-rate notes at a relative yield of 23 basis points more than the quarterly London interbank offered rate, Bloomberg data show.

The number of speculative-grade companies that are under liquidity stress held at an historically low level this month as firms have prepared to absorb potential shocks by capitalizing on record-low interest rates to refinance their debt and push out maturities, according to Moody’s Investors Service. The company’s Liquidity-Stress Index was 3.5 percent, below the 7.5 percent the measure has averaged since its inception in October 2002, according to Moody’s analyst John Puchalla.

The average relative yield on junk-rated debt fell 5 basis points, led by spreads on the bonds of communications companies which narrowed 8 basis points. High-yield, high-risk debt is rated less than Baa3 at Moody’s and below BBB- at Standard & Poor’s.

Contracts protecting against the default of Murphy Oil (MUR:US) rose 11.7 basis points to 144.8 basis points, the highest level on a closing basis since January, as of 4:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The company this week announced a plan to spin off its U.S. refined fuels business and to issue a special dividend to shareholders.

To contact the reporter on this story: Peter Rawlings in New York at prawlings@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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Companies Mentioned

  • ORCL
    (Oracle Corp)
    • $39.58 USD
    • -0.22
    • -0.56%
  • BK
    (Bank of New York Mellon Corp/The)
    • $39.34 USD
    • -0.34
    • -0.86%
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