Bloomberg News

U.S. Corporate Credit Risk Benchmark Declines on Germany Vote

September 29, 2011

Sept. 29 (Bloomberg) -- A benchmark gauge of U.S. corporate credit risk fell for the third time in four days after lower- than estimated claims for unemployment benefits added confidence in the economic recovery and a vote by German lawmakers to expand a European bailout fund eased concern that Greece will default.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 2.4 basis points to a mid-price of 138.8 basis points as of 5:43 p.m. in New York, according to index administrator Markit Group Ltd.

The credit swaps index, which typically falls as investor confidence improves and rises as it deteriorates, declined as Europe’s leaders take steps to prevent the region’s sovereign debt crisis from intensifying. German Chancellor Angela Merkel gained support from lawmakers to expand the European Financial Stability Facility’s firepower, as the lower house of parliament passed the measure with 523 votes in favor and 85 against.

The U.S. economy grew at a 1.3 percent pace in the second quarter, faster than previously estimated, and applications for jobless benefits dropped by a more-than-forecast 37,000 to 391,000, the fewest since April, according to government data.

The Markit CDX North America High Yield Index, which climbs as investor confidence improves, climbed 0.3 percentage points to 91.5 percent of face value, Markit data show.

Credit-default 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.

--Editor: Pierre Paulden

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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