Elsewhere in credit markets, the extra yield investors demand to hold corporate bonds globally rather than government debentures held at the lowest level in more than five years. The cost of protecting corporate bonds from default in the U.S. and Europe declined. Prices on leveraged loans fell.
Spreads on company bonds from the U.S. to Europe and Asia were little changed at 134 basis points, or 1.34 percentage points, after reaching that level on May 10, the least since Nov. 12, 2007, according to Bank of America Merrill Lynch’s Global Corporate index. Yields fell to 2.518 percent from 2.521 percent a week earlier.
The Barclays Global Aggregate Corporate Index has lost 1.71 percent this month, bringing the loss for this year to 0.51 percent.
The Markit CDX North American Investment Grade Index, used to hedge against losses or to speculate on creditworthiness, fell 1.9 basis points last week to 70.3 basis points, according to prices compiled by Bloomberg. The index reached 68.9 on May 7, the least since Nov. 6, 2007.
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The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 2.7 to 88.5, the lowest since May 2010, at 9:15 a.m. in London.
Both indexes typically fall as investor confidence improves and rise as it deteriorates. Credit-default 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 swap protecting $10 million of debt.
The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index fell 0.03 cent to 98.85 cents on the dollar. The measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has declined from 98.88 on May 9, the highest since July 18, 2007.
Leveraged loans and high-yield, high-risk, or junk, bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at S&P.
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