A gauge of U.S. corporate credit risk declined for a second day as investors weighed the future pace of central-bank stimulus.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, fell 1.1 basis points to a mid-price of 71.6 basis points at 4:29 p.m. in New York, according to prices compiled by Bloomberg.
Wholesale prices in the U.S. decreased last month by 0.7 percent, according to a Labor Department report today. Central bankers including St. Louis Federal Reserve President James Bullard said last month persistent disinflation may require the Fed to provide additional stimulus measures. Consumer prices rose 1 percent in March from a year earlier, the least since October 2009 as measured by the central bank’s preferred gauge of inflation.
“In terms of rates staying in a relatively comfortable range, the inflation side doesn’t seem to be a major concern” that would spur the Fed to start removing stimulus, Jon Sablowsky, head of trading at Brownstone Investment Group LLC in New York, said in a telephone interview. “You could start to be a little concerned about deflation.”
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.
American Express Co. (AXP:US) sold $1.85 billion of five-year debt in a two-part offering.
The biggest credit-card issuer by purchases sold $1 billion of 1.55 percent securities to yield 75 basis points more than similar-maturity Treasuries and $850 million of floating-rate notes to yield 59 basis points more than the three-month London interbank offered rate, according to data compiled by Bloomberg.
The notes will be used to repay $1 billion of 4.875 percent debt maturing July 15, the New York-based company said in a regulatory filing.
The risk premium on the Markit CDX North American High Yield Index declined 3.6 basis points to 348.6 basis points, Bloomberg prices show.
The three-month rolling average for Moody’s Investors Service’s bond covenant quality index reached 3.94 in April, little changed from its record low of 3.97 in March, according to a report from analysts led by Alexander Dill yesterday. The index is measured on a five-point scale, with 5 signifying the weakest covenant protection and 1 the strongest.
A high percentage of Ba rated bonds pushed covenant quality weaker, according to the report. Issuance of those bonds reached a record high of 41 percent of high-yield sales last month compared with the historical average of 28 percent.
The average relative yield on speculative-grade, or junk-rated, debt widened 4.3 basis points to 484.7 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s.
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