Credit Default Swaps In U.S. Rise Most In Two Weeks; Deere Sells Bonds

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A gauge of U.S. corporate credit risk rose the most in two weeks after the International Monetary Fund reduced its global growth forecast.

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 3.2 basis points to a mid-price of 98.4 basis points as of 4:52 p.m. in New York, according to prices compiled by Bloomberg. The increase was the biggest since a 4.1 basis-point jump on Sept. 25, the data show.

The IMF said the world economy will grow 3.3 percent this year, the slowest since the 2009 recession, down from a 3.5 percent estimate in July, heightening concern that slower economic growth will impair corporate balance sheets and make it more difficult for companies to repay obligations. The Washington-based organization reduced its prediction for 2013 to 3.6 percent from 3.9 percent.

“Lower growth forecasts result in lower earnings,” Mark Pibl, head of credit strategy at New York-based Cortview Capital Securities LLC, said in a telephone interview. “From a bondholder standpoint, anytime there’s slower growth the mechanism to adjust for that is a higher spread.”

The credit-swaps index typically rises as investor confidence[/URL] 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.

HD Supply
Deere & Co. (DE)’s finance arm sold $1 billion of bonds in a two-part offering. John Deere Capital Corp. issued $500 million of 1.7 percent notes due January 2020, the tractor-maker’s lowest-ever coupon for dollar-denominated debt with similar maturities. The company also sold $500 million of two-year, floating-rate securities yielding 10 basis points more than the London interbank offered rate, Bloomberg data show. A basis point is 0.01 percentage point.

HD Supply Inc., an industrial distribution company, plans to sell $750 million of 7.75-year notes to yield between 11.25 percent and 11.5 percent, according to a person familiar with the offering. Proceeds from the sale may be used to redeem a portion of the company’s 13.5 percent bonds maturing in 2015 said the person, who asked not to be identified because terms weren’t set.

The average relative yield on investment-grade debt increased 1 basis point, while that of speculative-grade debt rose 4 basis points, led by spreads on the bonds of utility companies, which widened 15 basis points.

To contact the reporter on this story: Peter Rawlings in New York at prawlings@bloomberg.net

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

Source:Bloomberg Businessweek

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