Bloomberg News

High-Yield Swap Index Holds at One-Week High as Fed Weighs Steps

September 21, 2011

Sept. 21 (Bloomberg) -- Confidence in U.S. high-yield, high-risk debt held at about the highest level in a week as investors bet the Federal Reserve will give more stimulus to the economy.

Markit’s CDX North America High Yield Index, a credit- default swaps index which rises as investor confidence improves, was unchanged at 93.75 percent of face value as of 8:37 a.m. in New York. The benchmark has climbed from 91 on Sept. 12, the lowest level in two years.

The Federal Open Market Committee meeting today will decide to replace short-term Treasuries in its $1.65 trillion portfolio with long-term bonds, according to 71 percent of 42 surveyed economists. The move is known as “Operation Twist” for its goal to bend the yield curve, forcing longer-term borrowing costs lower to support the housing market and consumers.

Credit swaps pay the buyer face value if a borrower fails to meets its obligations, less the value of the defaulted debt.

High-yield bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

To contact the reporter on this story: John Parry in New York at jparry5@bloomberg.net

To contact the editor responsible for this story: Pierre Paulden at ppaulden@bloomberg.net


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