The cost to protect against losses on corporate bonds in the U.S. fell for the first time in a week. PNC Financial Services Group Inc. issued $750 million in its first three-year, fixed-rate offering in seven months.
Credit-default swaps on the Markit CDX North American Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 2.1 basis points to a mid-price of 82.2 basis points, according to prices compiled by Bloomberg. That’s the biggest one-day drop since July 26.
Retailers from Home Depot Inc. (HD:US) to Best Buy Co. reported earnings that beat analysts’ estimates, indicating that U.S. consumers, whose activity accounts for about 70 percent of the economy, are regaining confidence.
Home Depot’s comparable-store sales jumped the most in 14 years and are “helping ease some concerns about consumer spending,” said Joel Levington, managing director of corporate credit for Brookfield Investment Management Inc. in New York. A boost for employees and vendors, it also indicates improvement in residential construction, he said. “It’s showing that after some housing inflation, consumers are reinvesting into likely their largest investments.”
The index, which typically falls as investor confidence improves and rises as it deteriorates, climbed for six of seven trading sessions before today, and rose 6.1 basis points last week, the largest advance since the period ended June 21.
The Depository Trust & Clearing Corp., which runs a central repository for the market, reported $5.7 billion of credit swaps trades today on the current series of the CDX investment-grade index, according to data compiled by Bloomberg.
Credit swaps 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 Moody’s Investors Service Liquidity-Stress Index for speculative-grade companies increased to 3.6 percent through the middle of August from 3.4 percent at the end of July, analysts for the ratings company led by John Puchalla said in a research note dated yesterday. The index, which declines when liquidity positions improve, is up from a record low of 2.8 percent at the end of April.
Speculative-grade companies, rated below Baa3 by Moody’s and less than BBB- at Standard & Poor’s, have issued $241.6 billion of debt this year, compared with $203.2 billion by this time last year, Bloomberg data show.
Moody’s index tracking the extent to which junk-rated companies are at risk of violating their debt covenants fell to 2.1 percent in July from 2.2 percent in June, according to the report. That’s up from the record low of 1.7 percent in April.
“Most companies have had comfortable cushion under their financial maintenance covenants,” the analysts wrote in the report. The index “signals a low risk of covenant violations for most over the next 12-15 months,” they wrote.
PNC, the second-largest U.S. regional bank, sold the 1.3 percent notes due October 2016 to yield 62 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The securities are expected to be rated A2 by Moody’s.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries widened 0.6 basis point to 131.6 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt increased 10.3 to 574.9.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 15.6 basis points to 404.5, Bloomberg prices show.
In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings narrowed 0.6 basis point to 102.4, Bloomberg prices show.
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