Bloomberg News

U.S. Company Credit Risk Rises After Europe Leaders Hold Summit

October 24, 2011

Oct. 24 (Bloomberg) -- A benchmark gauge of U.S. corporate credit risk rose, snapping two days of declines after European leaders held talks to curb the region’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, rose 0.6 basis point to a mid-price of 131.9 at 8:26 a.m. in New York, according to index administrator Markit Group Ltd.

The measure, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from a one- week low of 131.3 on Oct. 21. At a crisis-management summit, European leaders reached the halfway mark of their efforts to end the debt crisis, outlining plans to aid banks and ruling out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund.

The gauge has fallen from 150.1, the highest level in more than two years on Oct. 3, as investors have bet that officials will prevent the fiscal crisis from infecting bank balance sheets.

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.

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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