Dealers absorbing junk bonds as ETF demand drops

Credit Benchmarks

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, increased 2.1 basis points to a mid-price of 75.3 basis points as of 10:01 a.m. in New York, the highest since May 1, according to prices compiled by Bloomberg. The index has climbed 5 basis points this week, poised for the biggest weekly jump since the period ended March 22.

In London, the Markit iTraxx Europe Index, tied to 125 companies with investment-grade ratings, rose 5.6 to 98.2 and is up 7 on the week.

The indexes typically rise as investor confidence deteriorates and fall as it improves. 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.

The U.S. two-year interest-rate swap spread, a measure of debt market stress, increased 0.45 basis point to 15.5 basis points. The gauge widens when investors seek the perceived safety of government securities and narrows when they favor assets such as corporate bonds.

Petrobras Bonds

Bonds of Petroleo Brasileiro SA are the most actively traded dollar-denominated corporate securities by dealers today, accounting for 7.1% of the volume of dealer trades of $1 million or more, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Petrobras, as the Brazilian state-run oil producer is known, sold $11 billion of bonds abroad last week, the most ever for an emerging-market issuer.

Glencore and Vitol’s five-year loan increased from $7.5 billion after 10 to 15 lenders joined the facility, according to three people with knowledge of the matter, who asked not to be identified because the terms are private. Further banks have the option to commit to the deal, which can be increased to as much as $10 billion.

Specially-created companies are raising the prepayment loan, which will be backed by a portion of future oil production of Moscow-based Rosneft, Bloomberg data show. Russia’s largest oil company signed contracts and will receive a prepayment of as much as $10 billion for 67 million tonnes of crude, according to a March 6 statement.

The loan pays interest at 210 basis points, or 2.1 percentage points, more than the London interbank offered rate, Bloomberg data show.

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