A gauge of U.S. company credit risk rose as jobless claims fell to the lowest point in seven years. The cost to protect the debt of Dell Inc. (DELL:US) fell.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, rose 0.6 basis points to a mid-price of 76.6 basis points as of 11:07 a.m. in New York, according to prices compiled by Bloomberg. The measure typically climbs as investor confidence deteriorates and falls as it improves.
Investors are assessing the strength of the economy before the Federal Open Market Committee meets next week to determine whether to begin reducing $85 billion of monthly bond purchases meant to stimulate growth. Data released today showed first-time claims for unemployment insurance fell by 31,000 to 292,000, below the median forecast of 330,000 applications from a Bloomberg survey. A Labor Department spokesman said most of the decrease reflected computer-system changes in two states.
“People are going to start looking for ways to explain away unemployment numbers, but this will alter the Fed, and I think the Fed will taper at the end of the day,” Andrew Brenner, the head of international fixed income for National Alliance Capital Markets, said in a telephone interview.
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.
Dell’s credit risk fell after shareholders approved a $24.9 billion buyout plan led by Chief Executive Officer Michael Dell.
Five-year credit swaps tied to the debt of Dell fell 18.5 basis points to 410.5 basis points as of 10:35 a.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market.
This week, Standard & Poor’s lowered Dell’s corporate credit rating to BB-, a junk grade, from BBB.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, rose 2 basis points to 368.6, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries tightened 0.8 basis point to 132.4 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt narrowed 0.4 basis point to 598.6.
Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by Standard & Poor’s.
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