A gauge of U.S. corporate credit risk fell for the third consecutive session, dropping to the lowest level in more than two years.
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, decreased 1.1 basis points to a mid-price of 79.4 basis points at 4:41 p.m. in New York, according to prices compiled by Bloomberg. That’s the lowest since 79.3 on Feb. 17, 2011.
Investors are now watching U.S. retail sales and initial jobless claims data to be released this week, to get further direction on the pace of economic recovery. Government data in China showed the country’s industrial output expanded at a slower pace and lending and retail sales growth slowed. Fitch Ratings lowered Italy’s government bond grade one level to BBB+ March 8, citing political paralysis that threatens the country’s ability to respond to a recession and the European debt crisis.
“People are kind of cognizant of all the risks in the world, but positioning is totally in the opposite direction,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million, said today in a telephone interview.
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.
Viacom Inc. (VIAB:US), owner of the Paramount film studios and cable networks Nickelodeon and MTV, issued $550 million of unsecured bonds in a two-part deal, boosting the offering from an initial $500 million.
The company sold $300 million of 3.25 percent notes due 2023 that yield 130 basis points more than similar-maturity Treasuries and $250 million of 4.875 percent debt due June 2043 that pays 165 basis points more than benchmarks, according to data compiled by Bloomberg. The securities were rated Baa1 by Moody’s Investors Service and were given an equivalent BBB+ at Standard & Poor’s.
The risk premium on the Markit CDX North American High Yield Index fell 6.2 basis points to 398.5 basis points, the lowest level in two years, Bloomberg prices show.
The cost of protecting Chesapeake Energy Corp. (CHK:US)’s debt from losses increased after the oil and natural gas producer sued trustee Bank of New York Mellon Corp. (BK:US) in Manhattan federal court seeking to redeem $1.3 billion in notes early without paying a premium.
Five-year credit-default swaps on the Oklahoma City-based company’s debt added 6.5 basis points to 381.2 basis points as of 4:34 p.m. in New York, Bloomberg prices show.
The average relative yield on speculative-grade, or junk- rated, debt fell 15 basis points to 483.4 basis points, Bloomberg data show.
High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at S&P.
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