Bloomberg News

U.S. Corporate Credit Risk Gauge Falls to Lowest Level This Week

October 21, 2011

Oct. 21 (Bloomberg) -- A benchmark measure of U.S. corporate credit risk fell to the lowest level this week amid speculation policy makers are moving closer to a deal to contain the euro-area debt crisis and the Federal Reserve may seek further monetary easing.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 2.7 basis points to a mid-price of 131 basis points at 5:04 p.m. in New York, according to index administrator Markit Group Ltd.

The index, which typically falls as investor confidence improves and rises as it deteriorates, has dropped from a more than two-year high of 150.1 on Oct. 3 as investors have wagered that European leaders may prevent the upheaval in the region’s debt markets from infecting banks’ balance sheets globally.

Finance ministers are meeting in Brussels to lay the groundwork for an Oct. 23 gathering of government leaders that had been the deadline for a solution to the debt crisis. A further summit was scheduled for Oct. 26 yesterday after Germany and France said the European Union needs more time to seal a “global and ambitious” accord.

“The markets remain at the mercy of European headlines as risk assets are better bid on Friday,” Adrian Miller, fixed- income strategist at Miller Tabak Roberts Securities LLC in New York, said in an e-mailed note. “Investors seemed encouraged by the talk of combining the firepower” of the European Financial Stability Facility and the European Stability Mechanism, he wrote.

Repurchasing Stock

Credit-default swaps tied to the debt of General Electric Co.’s finance unit General Electric Capital Corp., which pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, declined 23.1 basis points to 255.5 basis points, according to data provider CMA, as tighter profit margins in the parent company’s industrial businesses from energy to aviation overshadowed third-quarter growth led by the finance unit.

GE paid $3.3 billion this month to repurchase preferred stock sold to Warren Buffett’s Berkshire Hathaway Inc. as financial markets froze in October 2008. Contracts on Berkshire Hathaway fell 15.7 to 187.1, the data show. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Federal Reserve Vice Chairman Janet Yellen said a third round of large-scale securities purchases might become warranted.

--Editors: Pierre Paulden, Mitchell Martin

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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