Global Stocks, Dollar Rise, Bond Risk Falls on Credit Outlook
By Michael Patterson
Sept. 13 (Bloomberg) -- Global stocks and the U.S. dollar climbed while the risk of owning corporate bonds fell on growing speculation that the turmoil in credit markets is easing.
The decline in the U.S. commercial paper market narrowed last week, the Federal Reserve said, bolstering expectations that the worst of the short-term debt rout may be over. Countrywide Financial Corp., the biggest U.S. mortgage lender, rose the most since May 2000 after saying it lined up $12 billion of financing.
Credit-default swaps for U.S. corporate bonds showed diminishing risk after Kohlberg Kravis Roberts & Co.'s bankers found buyers for loans to finance its purchase of U.K. pharmacist Alliance Boots. The dollar gained the most against the yen in more than two weeks, while crude oil closed above $80 a barrel in New York for the first time.
``Overall, the market is in a much healthier position,'' said Thomas Sowanick, chief investment officer of Clearbrook Financial LLC in Princeton, New Jersey.
Defaults on mortgages by Americans with poor or limited credit history have spurred a rise in borrowing costs across global credit markets as investors shun riskier debt, threatening to slow the global economic expansion and curb corporate profits.
The Morgan Stanley Capital International All-Country World Index, a gauge of global share prices, climbed 0.7 percent to 393.76 as of 4:34 p.m. in New York today. The dollar increased 0.75 percent against the Japanese currency, to 115.11 yen. That's the biggest one-day gain since Aug. 29.
Bond Risk Falls
Contracts on the CDX North America Investment-Grade Index, a benchmark for the cost of protecting bonds from default, dropped 3.5 basis points to 69.5 basis points, according to Phoenix Partners Group LLC in New York. A fall signals improving perceptions of credit quality.
The three-month London interbank offered rate for dollars, a key indicator of banks' willingness to lend, decreased to 5.69 percent, the lowest since Sept. 3, from 5.70 percent, the British Bankers' Association said. Treasuries fell for a third day as traders reduced holdings of the safest debt and bought riskier assets.
The Fed reported short-term debt dropped by $8.2 billion, compared with a decline of $31.3 billion a week earlier. Debt maturing in 270 days or less fell to a seasonally adjusted $1.92 trillion in the period ended yesterday, including a $21.6 billion decline in asset-backed commercial paper. Commercial paper outstanding has fallen $306.4 billion in five weeks.
``That will lend support to the market and increase confidence,'' said Liam Dalton, who oversees $1.3 billion as chief executive officer of Axiom Capital Management in New York. ``It matters in a very large sense because it is the fuel corporate America's short-term cash needs to run on.''
Countrywide Rallies
Countrywide rose the most in the Standard & Poor's 500 Index, gaining $2.31, or 14 percent, to $18.93. Countrywide's financing ``should substantially address funding concerns,'' Credit Suisse analyst Moshe Orenbuch wrote in a research note.
Countrywide last month borrowed $11.5 billion from bank credit lines to help weather a decline in investor demand for mortgages and reduced access to the commercial paper market, where the company usually borrows money. Bank of America Corp., the second-biggest U.S. bank, invested $2 billion in Countrywide on Aug. 22.
The S&P 500 gained 12.39, or 0.8 percent, to 1,483.95. Shares of financial companies contributed the most to the rally.
European stocks also advanced as concern eased that the credit turmoil is stifling growth in the world's largest economy. Anglo American Plc, the second-largest mining company, and ArcelorMittal, the biggest steelmaker, paced gains by metal producers. The Dow Jones Stoxx 600 Index added 0.8 percent to 372.21.
Boots Debt
Deutsche Bank AG, JPMorgan Chase & Co. and UniCredit SpA, which last month abandoned selling 6 billion pounds ($12 billion) of mostly senior loans to fund the Boots takeover, probably will next week finish syndicating 750 million pounds of mezzanine debt that ranks last for repayment, two bankers involved said.
KKR's eight underwriters have been saddled with all of the 9 billion pounds of debt financing Europe's biggest leveraged buyout after investors rejected high-risk, high-yield loans.
Banks have committed $350 billion for leveraged buyouts in the U.S. and 60 billion euros ($83 billion) in Europe that have yet to syndicate, according to UBS estimates. Underwriters agree to provide the financing to private-equity firms when the acquisitions are announced. If market conditions sour, banks are forced to hold debt they can't sell.
Boots spokesman Richard Constant, Deutsche Bank spokesman Richard Thomson and JPMorgan spokeswoman Colette Campbell, all in London, declined to comment.
Crude oil rose after Hurricane Humberto shut three refineries in Texas. The storm knocked out power at plants in Port Arthur, Texas, owned by Total SA, Valero Energy Corp. and Royal Dutch Shell Plc. The plants can process a combined 850,000 barrels of crude oil a day.
Crude for October delivery rose 18 cents to settle at $80.09 a barrel at 2:59 p.m. on the New York Mercantile Exchange, a record close. Futures touched $80.20, the highest intraday price since trading began in 1983. Prices are up 25 percent from a year ago.
RHG Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
