Bloomberg News

Credit Swaps in U.S. Hold; Citigroup Plans $1.3 Billion Offering

November 07, 2013

A gauge of U.S. company credit risk held as the European Central Bank cut interest rates and U.S. economic growth accelerated. Citigroup Inc. (C:US) is planning a $1.3 billion debt sale.

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 0.5 basis point to 72.2 basis points at 12:19 p.m. in New York, according to prices compiled by Bloomberg. The benchmark has fallen from a three-week high of 74.5 on Nov. 5.

The index dipped as much as 1.7 basis points after the ECB’s decision to cut its main refinancing rate to a record-low 0.25 percentage point. The swaps measure later pared its decline after data showed U.S. third-quarter gross domestic product expanded more than expected, causing a “build-up in speculation” that the Federal Reserve may cut back on stimulus in the coming months, according to Adrian Miller, director of fixed-income strategy at GMP Securities LLC in New York.

The index’s decline “was mostly from the knee-jerk reaction to the ECB rate cut, but the swaps are still tied to the Fed by extension,” Miller said in a telephone interview.

Gross domestic product rose at a 2.8 percent annualized rate after a 2.5 percent increase the prior three months, a Commerce Department report showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 percent advance.

Citigroup Offering

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.

Citigroup, the third-biggest U.S. bank by assets, may sell fixed- and floating-rate three-year notes, according to a person with knowledge of the offering. Moody’s Investors Service is expected to rate the New York-based lender’s notes Baa2 said the person, who asked not to be identified because terms aren’t set.

MetLife Inc. (MET:US), the largest U.S. life insurer, may sell $1 billion of 30-year bonds as soon as today, according to a person with knowledge of that offering. The debt may be rated A3 by Moody’s said the person, who asked not to be identified because terms aren’t set.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, was little changed at 351.7 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 0.5 basis point to 127.7 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt rose 1.8 to 548.5.

Investment-grade debt is rated Baa3 or higher at Moody’s and at least BBB- by Standard & Poor’s.

To contact the reporter on this story: Callie Bost in New York at cbost2@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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Companies Mentioned

  • C
    (Citigroup Inc)
    • $54.43 USD
    • -0.11
    • -0.2%
  • MET
    (MetLife Inc)
    • $54.87 USD
    • 0.01
    • 0.02%
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