Bloomberg News

U.S. Company Credit Risk Falls as France, Germany Set Deadline

October 20, 2011

Oct. 20 (Bloomberg) -- A benchmark gauge of U.S. company credit risk fell after France and Germany issued a statement saying they asked euro-region officials to agree on a plan to tame the region’s debt crisis by Oct. 26.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 0.6 basis point to 133.9 at 4:19 p.m. New York time, after climbing as high as 136.4 earlier today, according to index administrator Markit Group Ltd.

The index, which typically falls as investor confidence improves and rises as it deteriorates, has declined from 150.1 basis points on Oct. 3, the highest level in more than two years. Investors have been quick to react to developments as policy makers struggle to contain the region’s debt crisis, said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

“There’s a lot of headline risk out there,” Wilkinson said in a telephone interview.

German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed to ask euro-region leaders to assess a “comprehensive and ambitious” package of measures to solve the region’s debt crisis at a summit on Oct. 23, German government spokesman Steffen Seibert said today in an e-mailed statement. They intend for the leaders to agree to the measures at a second meeting by Oct. 26 at the latest, according to the statement.

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: John Parry, Pierre Paulden

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net

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


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