Credit-swaps tied to Saks Inc. (SKS:US), the luxury department-store retailer, plunged after Hudson’s Bay Co. (HBC) agreed to acquire the company. International Business Machines Corp. (IBM:US) issued $2.15 billion in a two-part debt offering.
Five-year credit swaps on Saks tightened 38.2 basis points to a mid-price of 226.4 basis points as of 4:16 p.m. in New York, the least since May 20 according to prices compiled by Bloomberg. A benchmark gauge of corporate credit risk in the U.S. rose.
The Hudson’s Bay acquisition of Saks for $2.4 billion seeks to combine Canada’s largest-department store chain with one of the most prestigious U.S. luxury retailers in a deal that may spur the creation of a real estate investment trust. The benchmark credit-default swaps measure increased as investors looked to signs of economic improvement to determine when the Federal Reserve will begin paring $85 billion in monthly bond purchases that have bolstered credit markets.
IBM, the largest computer-services provider, issued $650 million of two-year floating-rate notes to yield 3 basis points more than the three-month London interbank offered rate and $1.5 billion of 10-year, 3.375 percent securities at 83 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The debt, the first to be offered by the company since May 2, may be rated Aa3 by Moody’s Investors Service, the data show.
The Markit CDX North American Investment Grade Index, a default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 1.8 basis points to a mid-price of 76.1 basis points at 4:25 p.m. in New York, Bloomberg prices show.
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.
The Federal Open Market Committee is scheduled to meet July 30-31. In September, the central bank will trim its monthly bond buying to $65 billion, according to a growing number of economists surveyed by Bloomberg News. Half the economists held that view in a July 18-22 survey, up from 44 percent in last month’s poll.
“The biggest concern in the corporate bond market is still rising yields,” Scott Carmack, a money manager at Leader Capital Corp. in Portland, Oregon, said by telephone. “People who didn’t have insurance last time the corporate bond market blew up are moving in to protect themselves,” before economic data and the Fed policy meeting, he said.
The average relative yield on investment-grade debt widened 0.8 basis point to 128.1 basis points, according to data compiled by Bloomberg.
The risk premium on the Markit CDX North American High Yield Index rose 9.2 basis points to 372.8 basis points, Bloomberg prices show.
The U.S. distress ratio, or the number of distressed securities divided by total speculative-grade issues, increased to 6.1 percent in July, according to a Standard & Poor’s report today, citing a rise in spreads due to the possibility of a change in Fed policy.
The average relative yield on speculative-grade, or junk-rated, debt widened 3.8 basis points to 553.1 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s and less than BBB- at S&P.
To contact the reporter on this story: Scott Harrison in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Alan Goldstein at email@example.com