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Credit Swaps in U.S. Rise Most in Six Weeks; Celanese Plans Bond

November 07, 2012

A gauge of U.S. corporate credit risk increased the most in six weeks as lawmakers confront an impending fiscal crisis after voters elected President Barack Obama to a second term.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, climbed 3.5 basis points to a mid-price of 99.8 basis points at 4:26 p.m. in New York, according to prices compiled by Bloomberg. It’s poised for the biggest advance since Sept. 25 when the measure rose 4.1 basis points.

Uncertainty regarding the ability of legislators to reach a budget compromise may heighten investor concern that the economic recovery will weaken, impairing corporate balance sheets. Democrats in the U.S. retained the presidency and control of the Senate, even as Republicans kept their majority in the House of Representatives. Lawmakers face a so-called fiscal cliff of more than $600 billion in tax increases and spending cuts that will start in January if Congress doesn’t act.

“The biggest issue now is the fiscal cliff,” Adrian Miller, director of global market strategy at GMP Securities LLC in New York, said in a telephone interview. “With Obama winning the election the current thinking by many is that the tail risk to an unsuccessful outcome of the fiscal negotiation increases.”

Bailout Funds

Greek Prime Minister Antonis Samaras today was seeking approval of austerity measures from raising the retirement age to eliminating holiday payments for pensioners in an effort to obtain more bailout funds. The vote comes amid the third general strike in six weeks.

The credit-swaps index 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.

Contracts tied to General Electric Capital Corp. were the most actively traded U.S. company swaps by gross notional value for the week ended Nov. 2, according to the Depository Trust & Clearing Corp., which runs a central credit-swaps repository.

The total gross notional value of all single-name contracts dropped 31 percent to $99.2 billion last week, according to the New York-based DTCC, as Hurricane Sandy prompted a close in trading of U.S. fixed income securities at noon Oct. 29 and kept the market shuttered the following day.

Celanese Offering

Celanese Corp. (CE:US), the world’s biggest producer of acetic acid, plans to issue $500 million of bonds in its first sale this year. The Dallas-based company, through Celanese US Holdings LLC, may sell 10-year notes to yield about 4.625 percent more than similar-maturity Treasuries as soon as today to repay outstanding term loans, according to a person familiar with the offering who asked not to be identified because terms aren’t set.

The average relative yield on investment-grade debt climbed 2 basis points, led by spreads on the subordinated bonds of financial institutions and communication company debt, both of which widened 4 basis points, Bloomberg data show.

Credit-default swaps protecting the debt of U.S. defense contractors against default rose today. Contracts tied to Raytheon Co. (RTN:US) rose 7.7 basis points to 50.5 basis points, the highest since July, as of 3:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The cost of credit swaps tied to Northrop Grumman Corp. (NOC:US) rose 6.7 basis points to 49.2 and contracts protecting the debt of Lockheed Martin Corp. (LMT:US) rose 4.8 basis points to 69, according to CMA. If budget cuts that are part of the fiscal cliff take effect as scheduled in January, $55 billion, or about 9 percent, may be cut from the Pentagon’s budget request.

To contact the reporter on this story: Peter Rawlings in New York at

To contact the editor responsible for this story: Alan Goldstein at

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