Company Credit Swaps in U.S. Fall to Six-Year Low

Investors take increasing pace of hiring and number of open jobs to be positive indicators of companies' creditworthiness.

A gauge of U.S. company credit risk fell to the lowest level since 2007 as job openings climbed to a five-year high. The cost to protect the debt of Time Warner Cable Inc. against losses decreased.

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, decreased 1.7 basis points to 68.8 basis points as of 4:22 p.m. in New York, according to prices compiled by Bloomberg. The benchmark is poised to reach the lowest closing level since November 2007.

Investors are assessing gains in the job market as a sign of improving corporate creditworthiness, even amid speculation that positive economic data might prompt the Federal Reserve to cut back on stimulus at its December meeting, according to Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York.

“Risk markets continue to possess a positive tone, reflected by stocks hitting all-time highs of late,” Miller wrote in an e-mail. “Absent any data or event that throws cold water on the positive vibe, investment-grade swaps will be biased either lower or near” current tight levels.

The number of positions waiting to be filled in the U.S. rose by 69,000 to 3.91 million in September, the highest since May 2008, from a revised 3.84 million in August, the Labor Department reported today in Washington. The pace of hiring increased.

The swaps index typically falls as investor confidence improves and rises as it deteriorates. Credit swaps 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.


Cable Talks

Credit risk for Time Warner Cable fell as Comcast Corp. and Charter Communications Inc. were said to have discussed a joint bid for the second-largest U.S. cable company that would divide its assets between them.

Five-year swaps tied to the debt of New York-based Time Warner Cable declined 28.5 basis points to 177.5 basis points as of 3:26 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market.

The talks between Comcast and Charter have been preliminary, and a Time Warner Cable breakup is one option amid several under consideration, said people with knowledge of the matter, who asked not to be identified because the matter is private.


Rising Stars and Fallen Angels

Speculative-grade corporate debt borrowers known as rising stars that have been upgraded to an investment-grade ranking this year rose to 31 issuers through Nov. 8, up from 29 the previous month, according to a report released today by Standard & Poor’s.

There have been 19 borrowers downgraded to a high-yield ranking from investment-grade, or fallen angels, this year, S&P said in the report.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 6.5 basis points to 340.9 basis points, Bloomberg prices show.

The extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries fell 1.9 basis points to an average 128.1 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt decreased 0.7 basis point to 559.6.

High-yield, high-risk, or junk debt is rated below Baa3 by Moody’s and lower than BBB- at S&P.

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