Bloomberg News

U.S. Company Risk Rises as Europe’s Leaders to Gather on Crisis

October 19, 2011

Oct. 19 (Bloomberg) -- A benchmark gauge of U.S. corporate credit risk erased its third decline in four days as German and French leaders tried to narrow divisions before a summit this weekend to tackle Europe’s debt crisis.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.8 basis points to a mid- price of 134.5 basis points at 5:12 p.m. New York time, after earlier dropping as much as 1.9 basis points, according to index administrator Markit Group Ltd. Swaps on Goldman Sachs Group Inc. led a decline on contracts tied to banks.

The credit swaps index, which typically falls as investor confidence improves and rises as it deteriorates, reversed a decline triggered by Commerce Department figures in Washington showing that housing starts climbed 15 percent to 658,000 houses at an annual rate, the most since April 2010. The median forecast in a Bloomberg News survey called for a 590,000 pace.

A Franco-German split on the role of the European Central Bank in leveraging the euro bailout fund emerged at an event in Frankfurt today that was intended to mark the conclusion of Jean-Claude Triche’s term as ECB president.

The CDX index had decreased from 150.1 on Oct. 3 as investor optimism mounted that Europe’s debt crisis will be contained. 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.

Williams, Abbott Swaps

Swaps on Goldman Sachs fell 23.8 basis points to 321.2 basis points, according to London-based data provider CMA, a day after reporting its second quarterly loss in 12 years. The New York-based firm sold $500 million of 50-year unsecured bonds, according to a person familiar with the sale, who declined to be identified because terms aren’t set.

Contracts on Williams Cos. dropped the most in eight months after the company said it will spin off its exploration and production unit by the end of the year and canceled a planned $750 million initial public offering for a portion of it. Swaps on the Tulsa, Oklahoma-based firm fell 26.8 to 163.5, the lowest since August, CMA data show.

Abbott Laboratories swaps rose after the maker of infant formula, heart stents and prescription medicines said it will split into two companies next year. The contracts climbed 14.9 to 56, CMA data show.

The Abbott Park, Illinois-based firm will divide into two publicly traded companies, with one focusing on generic drugs and medical devices and the other research-based medicines, it said today in a statement.

--Editors: Pierre Paulden, John Parry

To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net

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


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