A gauge of U.S. corporate credit risk climbed as a budget deal stoked concern that the Federal Reserve could pare back stimulus. Time Warner Inc. (TWX:US) plans to raise $1 billion in its first bond sale this year.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, added 1.5 basis points to a mid-price of 69.2 basis points as of 1:04 p.m. in New York, according to prices compiled by Bloomberg. The measure ended Dec. 9 at 67.3, the lowest level since November 2007.
U.S. lawmakers announced a budget deal yesterday that would ease automatic spending cuts by about $63 billion over two years and reduce the deficit by $20 billion to $23 billion. The share of economists predicting the Fed will reduce its $85 billion of monthly bond buying in December has doubled to 34 percent.
“Tapering is not built into the markets, don’t be fooled,” Andrew Brenner, the head of international fixed income for National Alliance Capital Markets, said in an e-mail.
Credit swaps, which typically rise as investor confidence deteriorates and fall when it improves, 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.
Time Warner, the owner of the Warner Bros. movie studio, plans to sell 10- and 30-year debt as soon as today, according to a person with knowledge of the offering. The debt may be rated Baa2, two levels above speculative grade, by Moody’s Investors Service, 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, rose 4.9 basis points to 339.7, Bloomberg prices show.
The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries narrowed 0.4 basis point to 123.7 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt narrowed 1.6 basis points to 545.3.
High-yield, high-risk bonds are rated below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s.
Sales of investment-grade bonds may decline next year after a record $1.127 trillion has been sold so far in 2013, Bloomberg data show. Strategists at JPMorgan Chase & Co. project about a 1 percent drop in 2014 issuance while Bank of America Corp. expects sales to plummet 16 percent. Barclays Plc estimates an 8 percent decline.
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