Wells Fargo & Co. (WFC:US) sold $1.5 billion of seven-year bonds after posting record fourth-quarter profit. A gauge of U.S. corporate credit risk snapped a two-day decline.
The biggest U.S. home lender issued 3 percent notes, set to be rated A2 by Moody’s Investors Service, to yield 75 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Proceeds will be used by the San Francisco-based bank for general corporate purposes.
Wells Fargo’s profits were bolstered by expense cuts and one-time gains as Chief Executive Officer John Stumpf trims staff and expenses, with rising interest rates curtailing demand for home refinancings. Bank bond offerings this year will help to offset a projected 16 percent drop in U.S. high-grade sales as industrial issuers hold back amid increasing borrowing costs, Bank of America Corp. analysts led by Hans Mikkelsen wrote in a Nov. 25 report.
At the beginning of the year, “the banks like to come to market and issue just because they’re sort of mapping out their full-year plan for financing,” Jody Lurie, a corporate-credit analyst at Janney Montgomery Scott LLC in Philadelphia, said in a telephone interview. “Wells Fargo in particular had a fairly strong earnings result so I think that’s going to play to its favor.”
The lender’s net income advanced 10 percent last quarter to $5.61 billion, or $1 a share, from $5.09 billion, or 91 cents, a year earlier, the company said in a statement Jan. 14.
Bonds of Wells Fargo were the fourth most actively traded dollar-denominated corporate securities by dealers today, accounting for 2 percent of trades of $1 million or more as of 5 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, increased 1.3 basis points to 65 basis points as of 5:27 p.m. in New York, according to prices compiled by Bloomberg. The measure reached 66.2 basis points on Jan. 13, the highest level since Dec. 18.
The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. The contracts 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.
Best Buy Swaps
Credit swaps of Best Buy Co., the world’s largest consumer-electronics retailer, jumped 59.5 basis points to 295 basis points, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s the highest level since August.
Best Buy’s U.S. same-store sales fell in the holiday shopping season as price cuts failed to entice as many shoppers as expected. Domestic sales at locations open at least 14 months and on the Web fell 0.9 percent in the nine weeks ended Jan. 4, the Minneapolis-based chain said in a statement.
Corporate defaults are expected to decrease as the global economy gathers pace, according to a survey by the International Association of Credit Portfolio Managers.
The credit default outlook index, in which positive numbers indicate an expectation of fewer defaults and improved credit conditions during the next 12 months, rose to 4.5 from negative 6.9 in September and minus 35.6 last June, according to the survey, which was released today and conducted during the first week of January. IACPM’s 89 members include banks, insurance companies and asset managers in 17 countries.
The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 5 basis points to 315.8, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody’s and less than BBB- at S&P. A basis point is 0.01 percentage point.
The extra yield investors demand to hold investment-grade corporate bonds rather than government debt was little changed at 107.9, Bloomberg data show.
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