U.S. Credit Market Risk Gauge Spikes to Highest in Four Months

(Bloomberg) -- A measure of U.S. corporate credit risk hit a four-month high Thursday after Federal Reserve Chairman Jerome Powell underwhelmed markets by refraining from pushing back more forcefully against the recent spike in yields.

The Markit CDX North American Investment Grade Index widened 1.9 basis points to 56.5 basis points, according to data compiled by Bloomberg. That’s the highest level since Nov. 4. Investors use the credit-default swaps index to hedge against losses on corporate bonds or to bet on gains in the market.

Bond yields have climbed in recent weeks on mounting expectations of stronger economic growth and faster inflation after the pandemic ends. U.S. credit has started to sell off with the rates spike, exposing the highest-rated bonds to more losses because of their elevated duration.

Investment grade bonds have posted a nearly 3% negative total return so far this year, their worst start to a year since 1980.

Click here for Bloomberg CDS Index Monitor.

• FedEx and TransCanada PipeLines had the best-performing contracts tied to individual companies, according to ICE Data Services; Kohl’s and Ally Financial were the worst
• Trading volume in all series of the CDX Investment Grade was $21.6 billion

• Cash bonds widened 1.8 bps to 92.8 bps

  • Best-performing sectors were utilities (+1.0) and materials (+1.1)
  • Worst-performing sectors were consumer staples (+2.2) and communications (+2.1)
• Bloomberg Barclays U.S. Corporate Bond index had a total return of -0.50% in the previous session and -2.12% for the past month
• iShares iBoxx $ Investment Grade Corporate Bond ETF fell 0.8%
• The Standard & Poor’s 500 index fell 1.3% to 3,768.49

Recent movers:

• Talen Energy Supply Senior CDS Widens 3 Pts, Most in 4 Months
• Bombardier Senior CDS Tightens 3 Pts, Most in 3 Months
• EDP Finance Senior CDS Widens 6 Bps, Most in 5 Months
• Safeway Senior CDS Widens 23 Bps, Most in 10 Months

Click here for Bloomberg’s Fixed Income Credit Monitor.

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