A gauge of U.S. corporate credit risk rose to the highest in seven days after companies reported results that missed analyst estimates and as Spain’s economy contracted for a fifth quarter.
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, climbed 2.7 basis points to a mid-price of 96.7 basis points at 4:37 p.m. in New York, according to prices compiled by Bloomberg. The index earlier rose by as much as 3.9 basis points, the biggest intraday jump since Sept. 25.
Shares of DuPont Co. and Western Digital Corp. (WDC:US) both fell after reporting earnings that trailed analyst estimates, stoking concern that the economic recovery is slowing and weakening confidence in companies’ ability to repay debt. The 0.4 percent contraction last quarter in Spain’s gross domestic product added pressure on Premier Mariano Rajoy to seek more European aid.
“You’re seeing some concerns in terms of credit right now because of the likes of DuPont,” Scott Carmack, a portfolio manager at Leader Capital Corp. in Portland, Oregon, said in a telephone interview. “You have earnings numbers that miss their estimates and set that against a backdrop of political uncertainty and the market’s going to react to that.”
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.
Plains Exploration & Production Co. (PXP:US), the oil and gas producer, sold $3 billion of bonds in two parts to help fund the purchase of assets from BP Plc and Royal Dutch Shell Plc. The company issued equal $1.5 billion portions of eight-year debt to yield 6.5 percent and 10.5-year securities to yield 6.875 percent, Bloomberg data show.
The average relative yield on investment-grade debt increased 2 basis points, while spreads on speculative-grade securities widened 8 basis points, led by a 25-basis-point climb for bonds of utilities companies.
The U.S. two-year interest rate swap spread, a measure of stress in credit markets, rose 1.23 basis point to 10.75 basis points. The measure, which rises when investors seek the perceived safety of government securities and falls when they favor assets such as corporate bonds, last week touched the narrowest on an intraday basis since at least 1988, or as far back as Bloomberg tracks the data.
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