A gauge of U.S. corporate credit risk increased to the highest level since August after a European Union official said euro-area finance ministers may not unlock funds for Greece until late November.
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, rose 4.3 basis points to a mid-price of 104.5 basis points at 4:42 p.m. in New York, according to prices compiled by Bloomberg. The measure is poised for the highest close since it reached 109 basis points Aug. 2.
Failure to stem the European debt crisis may heighten investor concern that a global economic slowdown will hinder companies’ ability to repay debt. Finance chiefs won’t make the call to release aid for Greece that has been frozen since June when they meet in Brussels on Nov. 12, the official said today on condition of anonymity because the deliberations are private. Ministers will await a final report on Greece’s effort to meet bailout conditions before taking action, said the official.
Risk sentiment is rising, “driven by comments out of Europe and the equity selloff,” Mark Pibl, head of credit strategy at New York-based Cortview Capital Securities LLC, said in a telephone interview. Losses in stocks “definitely spooked some folks.”
The Dow Jones Industrial Average slid to the lowest level since July, extending a decline since the re-election of President Barack Obama.
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.
Sprint Nextel Corp. (S:US), the third-largest U.S. wireless carrier, sold $2.28 billion of 10-year bonds to refinance debt, Bloomberg data show. The debt was priced to yield 437 basis points more than similar-maturity Treasuries.
The average relative yield on investment-grade debt climbed 2 basis points, led by spreads on the subordinated bonds of financial companies, which widened 4 basis points, Bloomberg data show.
The global speculative-grade default rate was 2.9 percent in October, down from 3.1 percent the prior month, according to a report yesterday by Moody’s Investors Service. That is below the 4.8 percent historical average since 1983, as the sole default last month was Baltimore-based Vertis Holdings Inc., which has filed for bankruptcy three times since 2008, according to the report.
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