A gauge of U.S. corporate credit risk rose for a second day as better-than-expected housing data stoked speculation that the Federal Reserve may reduce asset buying this year. American Express Co. (AXP:US) sold $3 billion in bonds.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to protect against losses or to speculate on creditworthiness, increased 1.3 basis points to a mid-price of 76.4 basis points at 5:45 p.m. in New York, according to prices compiled by Bloomberg.
Investors are looking to economic data to determine when the Fed will pare its $85 billion in monthly bond purchases, which have bolstered credit markets. Sales of new homes rose more than forecast in June to the fastest pace in five years.
“Even though the Fed has indicated a more accommodative approach dependent on data, there still is a degree of fear in the credit market,” William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Massachusetts, said in a telephone interview. “People are starting to prepare for the change in interest rates and the Fed pulling back from the market.”
The credit-swaps index 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 of debt.
Fed policy makers will probably trim the monthly asset purchases to $65 billion in September, according to a July 18-22 survey of economists by Bloomberg News.
Purchases of new homes climbed 8.3 percent to an annualized pace of 497,000, the highest level since May 2008, the Commerce Department said today in Washington. The median estimate of 77 analysts surveyed by Bloomberg called for a gain to 484,000.
American Express, the biggest credit-card issuer by purchases, issued $1 billion of 1.3 percent, three-year securities to yield 68 basis points more than similar-maturity Treasuries and $800 million of 2.125 percent, five-year notes that pay a relative yield of 78 basis points, according to data compiled by Bloomberg. Its $1.2 billion of three-year, floating-rate debt pays 51 basis points more than the three-month London interbank offered rate.
Gannett Co. (GCI:US), the publisher that agreed to buy Belo Corp. (BLC:US) for about $1.5 billion last month, plans to sell $500 million in seven-year senior notes, it said in a statement distributed by PR Newswire.
Proceeds from the offering will be used to repay outstanding debt in its revolving credit facilities and other obligations, McLean, Virginia-based Gannett said in the statement.
The average relative yield on investment-grade debt widened 0.4 basis point to 126.2 basis points, Bloomberg data show.
The risk premium on the Markit CDX North American High Yield Index increased 10.6 basis points to 375.8 basis points, Bloomberg prices show.
The average relative yield on speculative-grade, or junk-rated, debt widened 6.7 basis points to 535.5 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.
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