A gauge of U.S. corporate credit risk rose the most in three weeks amid concern a levy on Cypriot bank deposits will reignite the region’s debt crisis.
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, added 1.5 basis points to a mid-price of 80.2 basis points at 4:08 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest increase since gaining 3.8 basis points Feb. 25.
Euro-region finance ministers forced depositors in Cypriot banks to share in the cost of rescuing the island nation, reducing the cost of the bailout by 5.8 billion euros ($7.5 billion) to 10 billion euros. While Cyprus accounts for less than half a percent of the 17-nation euro area’s economy, investors are concerned the raid on bank accounts risks a resumption of the financial crisis that began in 2009 in Greece.
“It’s a hell of a precedent,” Mark Alexandridis, a portfolio manager at First Principles Capital Management LLC, said today in a telephone interview. “There’s concern about contagion to smaller banks in some of the peripheral countries, and a bank run would not be a good thing for the market right now.”
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.
Chesapeake Energy Corp. (CHK:US), the second-biggest U.S. natural gas producer that’s selling as much as $7 billion in assets this year to plug a cash shortfall, is planning to issue $2.3 billion of bonds in three parts to fund a tender offer and to repay debt.
The company may sell senior notes (CHK:US) due in March 2016, June 2021 and March 2023 as soon as today, according to a person familiar with the transaction who asked not to be identified because terms aren’t set. Proceeds will be used to fund a tender offer for Chesapeake’s 7.625 percent securities due 2013 and its 6.875 percent debentures maturing in 2018, the Oklahoma City- based company said today in a statement. It will also use proceeds to redeem its 6.775 percent notes due 2019 and repay its revolving bank credit facility.
The risk premium on the Markit CDX North American High Yield Index climbed 4.6 basis points to 397.6 basis points, rising for a second day, Bloomberg prices show.
The cost to protect the debt of clothing company Jones Group Inc. (JNY:US) rose by the most in a month as the company appointed Greg Clark, previously the senior vice president of creative marketing for J.C. Penney Co., as its chief marketing officer.
The five-year credit-default swaps on the New York-based company added 10.7 basis points to 349.3 basis points as of 4:02 p.m., Bloomberg prices show. That’s the biggest jump since Feb. 18.
The average relative yield on speculative-grade, or junk- rated, debt rose 4.5 basis points to 493.3 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.
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