Bloomberg News

Corporate Default Swaps in U.S. Rise; Wells Fargo Issues Bonds

February 06, 2013

A gauge of U.S. corporate credit risk rose for the second time this week after increasing the most in five weeks.

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, advanced 1.1 basis points to a mid-price of 89.5 basis points at 4:25 p.m. in New York, according to prices compiled by Bloomberg. The measure increased 4.1 basis points Feb. 4, the most since Dec. 28.

The gauge 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.

Wells Fargo & Co., the largest U.S. home lender, issued $2 billion in its first sale of 10-year benchmark, dollar- denominated bonds in about 11 months.

The bank’s 3.45 percent senior subordinated notes yield 150 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

The risk premium on the Markit CDX North American High Yield Index increased 4.3 basis points to 449.2 basis points, Bloomberg prices show.

The average relative yield on speculative-grade or junk- rated debt rose 4.8 basis points to 490.7 basis points, according to Bloomberg data.

High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at S&P. A basis point is 0.01 percentage point.

To contact the reporter on this story: Madhura Karnik in New York at mkarnik@bloomberg.net

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


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