Bloomberg News

U.S. Credit Swaps Decline as Home Sales Climb; Nike Issues Bonds

April 23, 2013

A gauge of U.S. corporate credit risk dropped for a third straight day as new-home sales rose, boosting confidence that improvement in the housing market can be sustained.

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 1.4 basis points to a mid-price of 80.7 basis points at 4:21 p.m. in New York, according to prices compiled by Bloomberg.

Sales of single-family properties climbed 1.5 percent to a 417,000 annual pace last month, Commerce Department figures showed today in Washington. The median estimate of 76 analysts in a Bloomberg survey called for March sales to rise to 416,000. Investors use signs of economic health to help gauge whether companies will struggle to repay debt.

“We do think that housing will be the driver of the economic recovery, and our forecast is for continued signs of strength in the economy,” George Rusnak, national director of fixed income for Wells Fargo Private Bank, which oversees $170 billion in assets, said 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.

Home Prices

The median price of a new home climbed 3 percent in March from a year ago to $247,000, today’s report showed. Home sales averaged a 424,000 annual rate in the first three months of this year, the strongest since the third quarter of 2008.

“So long as the Federal Reserve continues its monetary policy, there are a lot of reasons why housing will continue to go up, and the health of the housing market has been the best proxy of the jobs market to date,” Tim Rood, a partner in the Collingwood Group LLC, a Washington-based financial services consulting firm, said in a telephone interview.

Nike Inc. (NKE:US), the world’s largest sporting-goods company, raised $1 billion in bonds with its first debt sale in a decade.

The athletic-footwear maker sold equal $500 million portions of 2.25 percent, 10-year debt and 30-year securities with a 3.625 percent coupon, the lowest among similar corporate bonds issued in the U.S. this year, according to data compiled by Bloomberg. The 2023 notes yield 58 basis points more than Treasuries, with the 2043 bonds paying a spread of 75.

Nike Issuance

Nike last sold bonds in October 2003, with $100 million of 5.15 percent debt due 2015, according to data compiled by Bloomberg. Those notes traded at 110.4 cents on the dollar April 11 to yield 0.94 percent, or 70.5 basis points more than similar-maturity Treasuries, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Borrowers are coming to market as yields on companies in Bank of America Merrill Lynch’s U.S. High Yield Index, which includes debt tied to firms from D.R. Horton Inc. to J.C. Penney Co., reached a record low 6.28 percent yesterday.

The risk premium on the Markit CDX North American High Yield Index decreased 6.5 basis points to 393.7 basis points, Bloomberg prices show.

The cost to protect against a default by RadioShack Corp. (RSH:US) climbed as the electronics chain trailed first-quarter revenue estimates.

RadioShack Revenue

Five-year credit swaps linked to RadioShack rose 1.2 percentage points to a mid-price of 26.2 percent upfront at 4:20 p.m., according to CMA, the data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers. That means it would cost $2.6 million initially and $500,000 annually to protect $10 million of obligations.

RadioShack reported (RSH:US) $849 million in sales for the first quarter, below the $960.7 million expected by 15 analysts surveyed by Bloomberg. The company has about 38 months until it would need to seek additional financing if operations don’t improve, Bloomberg data (RSH:US) show.

“We see ratings risk, and we expect earnings before interest, taxes, depreciation and amortization to be insignificant (or negative) for the coming two quarters,” Carla Casella and Paul Simenauer, analysts at JPMorgan Chase & Co. in New York, wrote today in a note to clients.

The average relative yield on speculative-grade, or junk- rated, debt tightened 4.6 basis points to 532.3 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

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


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Companies Mentioned

  • NKE
    (NIKE Inc)
    • $94.84 USD
    • -2.24
    • -2.36%
  • RSH
    (RadioShack Corp)
    • $0.38 USD
    • 0.06
    • 15.05%
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