A gauge of U.S. corporate credit risk fell to the lowest in a month as China signaled further policy support and a group of Republican lawmakers joined a bipartisan call to break an impasse over tax increases for the highest- earning Americans.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, fell 2.6 basis points to a mid-price of 97.8 basis points at 4:36 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest since the measure reached 96.3 basis points Nov. 6.
China’s regulators eased restrictions on investing in commercial banks, and Xinhua news agency said yesterday the country will promote urbanization and expand domestic demand, adding to optimism the country’s leaders will foster growth. Signs the global recovery is gaining strength may ease investor concern that the financial slowdown will damage corporate balance sheets and hinder companies’ ability to repay debt.
“Some of the positive momentum that began in Asia filtered through to our markets and gave us a bit of a lift,” Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP, said in a telephone interview from New York. “We’re grasping for some positive news, because people are in pretty much of a wait-and-see mode with respect to what’s going on in Washington with the fiscal cliff debate.”
Chinese stocks rose the most in three months after the government abolished a regulation on insurance companies’ investment limits in commercial banks. The country will expand domestic demand, actively promote urbanization and strengthen real-estate controls, Xinhua said yesterday, citing a statement issued after a meeting of top leaders.
A few dozen Republicans joined a bipartisan call to break the impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans, signing a letter calling for exploring “all options.”
U.S. firms added 118,000 workers in November, the ADP Research Institute showed today, below the median forecast of 125,000. The Institute for Supply Management’s non-manufacturing index rose to 54.7 last month, above the 53.5 median estimate in a Bloomberg survey. Readings above 50 signal expansion.
The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.
Humana Inc. (HUM:US), the health care company that is acquiring Metropolitan Health Networks Inc., sold $1 billion of bonds in its first sale in more than four years to help fund the purchase. The insurer sold $600 million of 3.15 percent 10-year notes and $400 million of 4.625 percent 30-year debt, according to data compiled by Bloomberg. Fitch Ratings said in a statement it expects to grade the securities BBB, two levels above speculative-grade.
The risk premium on the Markit CDX North American High Yield Index fell 22.7 basis points to 493.5 basis points, the lowest since Oct. 22, according to prices compiled by Bloomberg.
Media and entertainment, oil and gas, and retail and restaurant industries have the highest levels of credit stress in the U.S. this year, according to Standard & Poor’s.
“These sectors accounted for 19 of the 41 U.S. defaults in 2012,” Diane Vazza, an analyst at S&P, wrote in a report yesterday. Companies in these sectors had the highest risk among distressed issuers, weakest links and potential bond downgrades in October.
Credit swaps protecting against losses on the debt of Freeport-McMoRan Copper & Gold Inc. (FCX:US) rose 16.3 basis points to 151.8 basis points 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.
The world’s largest publicly traded copper producer agreed to acquire Plains Exploration & Production Co. and McMoRan Exploration Co. for about $9 billion. Freeport will pay about $50 a share in cash and stock for Plains, representing a takeover premium of about 39 percent based on the company’s closing share prices yesterday, Phoenix-based Freeport said today in a statement.
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