Bloomberg News

Corporate Credit Risk Falls on Optimism U.S. May Avert Recession

October 26, 2011

Oct. 26 (Bloomberg) -- A benchmark of U.S. corporate credit risk declined to the lowest in more than a month as U.S. durable-goods orders and home sales rose and Europe’s leaders gathered to address 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, fell 3.9 basis points to a mid- price of 125.8 basis points at 5:09 p.m. in New York, according to index administrator Markit Group Ltd. That was the fourth decline in five days, taking the gauge to its lowest level since Sept. 16.

The measure, which typically falls as investor confidence improves and rises as it deteriorates, has decreased from a more than two-year high of 150.1 on Oct. 3 on investor optimism that the U.S. may avoid sliding into recession and policy makers in Europe may stem the region’s sovereign debt crisis.

Orders for U.S. durable goods other than transportation gear rose in September by the most in six months, according to figures released today by the Commerce Department in Washington. Another report from the department showed new-home sales increased. Sales climbed 5.7 percent to a 313,000 annual pace, exceeding the median estimate of economists surveyed by Bloomberg News for a gain to 300,000.

Better than anticipated earnings also encouraged traders to push the index lower, as about three-quarters of the 210 Standard & Poor’s 500 companies that reported results since Oct. 11 have topped analysts’ estimates, according to data compiled by Bloomberg.

French President Nicolas Sarkozy and German Chancellor Angela Merkel want to meet Greece’s creditors in Brussels tonight on the sidelines of a European summit to break a deadlock of the terms of a debt writedown, said a person familiar with the matter.

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, Mitchell Martin

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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