A gauge of U.S. company credit risk declined from the highest level in three weeks as Federal Reserve officials advocated persistent economic stimulus. A unit of Alcatel-Lucent SA (ALU) plans to issue $750 million in notes.
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, decreased 1.9 basis points to 72.6 basis points at 5:10 p.m. in New York, according to prices compiled by Bloomberg. The measure closed at 74.5 basis points yesterday for the highest closing level since Oct. 15.
The index fell on the outlook for Fed policy as two papers from central bank officials said the level of slack in America’s economy justifies an accommodative monetary-policy stance. Investors are reading the papers as a sign that the Fed may refrain from tapering at its December meeting, according to Robert Grimm, head of corporate trading at Odeon Capital Group LLC in New York.
“At this point in time, the Fed is not going to taper any time soon and rates are going to stay where they are,” Grimm said in a telephone interview.
The central bank’s near-zero target interest rate and $85 billion a month in bond purchases have bolstered credit markets.
William English, head of the Fed’s Division of Monetary Affairs, wrote that the strategy of not raising interest rates if unemployment is above 6.5 percent has provided effective stimulus, and that an even lower threshold could be helpful. A paper by David Wilcox, the research and statistics chief, says that slack in the economy argues for loose policy at a time of contained expectations for inflation.
The swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.
Alcatel-Lucent USA Inc. is planning to issue the seven-year dollar-denominated notes as part of a push to raise $2.7 billion to finance Chief Executive Officer Michel Combes’s overhaul of the network-equipment maker.
The sale may be as soon as this week, according to a person with knowledge of the transaction. The Paris-based company’s notes may be rated B3 by Moody’s Investors Service, said the person, who asked not to be identified because terms aren’t set.
Ford Motor Credit Co., the finance arm of Ford Motor Co. (F:US), sold $1.25 billion in three-year fixed- and floating-rate notes, according to data compiled by Bloomberg. The debt may be rated Baa3 by Moody’s, according to a person with knowledge of the offering, who asked not to be identified, citing lack of authorization to speak publicly.
Bank of America Corp. (BAC:US) sold $2.5 billion of three-year debt in two parts, including $1.5 billion of 1.125 percent bonds that yield 60 basis points more than similar-maturity Treasuries.
The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 9.1 basis points to 351.8 basis points, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries rose 0.9 basis point to 127.2 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 5.2 to 547.3.
Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by Standard & Poor’s.
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