Bloomberg News

U.S. Company Credit Swaps Rise as Fed Lowers Growth Forecast

June 22, 2011

June 22 (Bloomberg) -- The cost of protecting U.S. company bonds from default rose from the lowest level in two weeks after the Federal Reserve lowered its economic growth forecast.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1.2 basis points to a mid-price of 97.7 basis points as of 4:34 p.m. in New York, according to index administrator Markit Group Ltd.

The credit swaps index, which typically rises as investor confidence deteriorates and falls as it improves, climbed after Fed officials lowered their forecasts for growth and employment this year and next, and said that inflation excluding food and energy will be somewhat higher than previously forecast.

The swaps benchmark fell three basis points yesterday, the most since March 18, before Greek Prime Minister George Papandreou won a vote of confidence from 155 out of 300 lawmakers last night. Papandreou still needs parliamentary approval next week for a 78 billion-euro ($112 billion) package of budget cuts to stave off default.

Markets were weaker this morning as “the feel good rally” was balanced by “the realization that the Greek confidence vote is just one step in a very difficult process,” Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York, said in an e-mail.

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.

--Editors: Pierre Paulden, Sharon L. Lynch

To contact the reporter on this story: Mary Childs in New York at

To contact the editor responsible for this story: Alan Goldstein at

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