Credit-default swaps tied to Health Management Associates Inc. (HMA:US) fell to the lowest level in six years as Community Health Systems Inc. (CYH:US) said it agreed to acquire the company. WellPoint Inc. (WLP:US) sold $1.25 billion in bonds.
Five-year credit swaps tied to Health Management tightened 35.1 basis points to a mid-price of 134.9 basis points as of 3:30 p.m. in New York, according to prices compiled by data provider CMA, which is owned by McGraw Hill Financial Inc. (MHFI:US) The contracts are at the lowest level since 2007.
Community Health, the second-largest U.S. hospital chain (CYH:US), agreed to buy Naples, Florida-based Health Management for $3.9 billion in cash and stock.
A benchmark gauge of U.S. corporate credit risk was little changed as investors await the results from the Federal Reserve’s two-day policy meeting.
The Markit CDX North American Investment Grade Index, a default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, decreased 0.5 basis point to 75.8 basis points at 4:40 p.m. in New York, according to prices compiled by Bloomberg. The index is down 11.3 basis points in July, heading for its first monthly decline since April.
“The market is still sensitive to what the Fed says,” Jody Lurie, a credit strategist at Janney Montgomery Scott LLC, said in a telephone interview from Philadelphia. “The initial shock that corporates would drop because rates would rise dramatically” has tempered slightly, she said.
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.
The Fed will maintain the pace of its bond buying when it concludes its two-day Federal Open Market Committee meeting tomorrow, according to 54 economists in a July 18-22 Bloomberg survey. The central bank will trim its monthly asset purchases to $65 billion in September from $85 billion, according to half the economists surveyed.
WellPoint, the second-biggest U.S. health insurer, sold $650 million of 2.3 percent, five-year notes to yield 100 basis points more than similar-maturity Treasuries and $600 million of 5.1 percent bonds due in January 2044 at a spread of 145 basis points, according to data compiled by Bloomberg.
WellPoint plans to tender for $600 million of debt, which includes portions of six of its securities maturing from 2017 to 2040, the Indianapolis-based company said today in a statement that also cited the offering. The notes are rated Baa2 by Moody’s Investors Service, the data show.
The average relative yield on investment-grade debt widened 0.4 basis point to 128.1 basis points, according to prices compiled by Bloomberg.
The risk premium on the Markit CDX North American High Yield Index declined 0.9 basis point to 371.6 basis points, Bloomberg prices show.
The average relative yield on speculative-grade, or junk-rated, debt widened 0.3 basis point to 552.8 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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