Bloomberg News

Corporate Credit Swaps in U.S. Increase; Microsoft Issues Bonds

November 02, 2012

A gauge of U.S. corporate credit risk increased, reversing an earlier decline, even after a report showed hiring increased.

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, increased 1.1 basis points to a mid-price of 97.4 basis points at 4:32 p.m. in New York, according to prices compiled by Bloomberg. The measure reached as low as 94.5 earlier today.

The last jobs report before next week’s presidential contest showed a net 171,000 workers were added to payrolls in October as unemployment rose to 7.9 percent. Uncertainty about the strength of the economic recovery may heighten investor concern that corporations will have trouble servicing their debt obligations.

The increasing unemployment rate “brings back the reality that we’ve got a lot of people out of work that can’t find jobs,” Robert Grimm, head of high-yield trading at Odeon Capital Group LLC in Greenwich, Connecticut, said in a telephone interview. “The question is how much do you want to hang your hat on these numbers.”

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.

Verizon Offering

Verizon Communications Inc. (VZ:US), the second-biggest U.S. phone company, sold $4.5 billion of debt in a four-part transaction, according to data compiled by Bloomberg. The company issued $1 billion of three-year bonds to yield 32 basis points more than similar-maturity Treasuries; $500 million of five-year securities with a 42 basis-point spread; $1.75 billion of 10- year debt with a 75 basis-point spread; and $1.25 billion of 30- year notes at 97 basis points.

Microsoft Corp. (MSFT:US) issued $2.25 billion of bonds in three parts with its first sale in 21 months. The world’s largest software maker sold $600 million of five-year notes to yield 27 basis points more than Treasuries; $750 million of 10-year debt with a 47 basis-point spread; and $900 million of 30-year securities with 67 basis points of extra yield, Bloomberg data show.

The average relative yield on speculative-grade debt climbed 2 basis points, led by spreads on the bonds of utility companies, which widened 46 basis points.

Energy Future

Credit swaps protecting the debt of Energy Future Holdings Corp. rose 4.4 percentage points to 57.9 percent upfront as of 3:30 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. That’s in addition to 5 percent a year, meaning it would cost $5.79 million initially and $500,000 annually to protect $10 million of the company’s debt.

Energy Future bonds fell for a third day after the company, which was taken private in 2007 in the largest buyout in history, announced a $407 million third-quarter loss as demand weakened because of milder weather.

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

  • VZ
    (Verizon Communications Inc)
    • $50.35 USD
    • 0.66
    • 1.31%
  • MSFT
    (Microsoft Corp)
    • $47.52 USD
    • 0.84
    • 1.77%
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