Bloomberg News

U.S. Credit Risk Records Biggest Weekly Decline Since June 2009

October 28, 2011

Oct. 28 (Bloomberg) -- A benchmark gauge of U.S. corporate credit risk recorded the biggest weekly decline since June 2009 as efforts by European leaders to stem the region’s debt crisis ease concerns of an escalating financial crisis.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, has dropped 17.4 basis points this week to 113.9 as of 5:05 p.m. in New York, according to index administrator Markit Group Ltd. The index increased 0.5 basis point today. In London, the Markit iTraxx Europe index linked to 125 companies dropped 25.9 basis points to 149.6, the biggest weekly decline since May 2010.

The indexes plunged yesterday after Europe’s leaders agreed to a deal that will boost a rescue fund supporting debt-laden nations and persuaded bondholders to take 50 percent losses on Greek debt. Measures also included a recapitalization of the region’s banks. These steps are inducing investors to wager that the region’s bond market upheaval won’t infect bank balance sheets globally.

“The progress in Europe is encouraging, as officials are now debating specific points rather than speaking hypothetically,” Barclays Capital strategists led by Jeffrey Meli in New York wrote in a note to clients today. The developments “have significantly lowered the risk of a disorderly outcome in the near term.”

Italy Debt Sale

The drop in the European swaps index slowed and the U.S. gauge pared its decline today after Italy’s borrowing costs rose to a euro-era record in a sale of three-year debt.

The Rome-based Treasury sold 3.08 billion euros ($4.36 billion) of 2014 bonds to yield 4.93 percent, the highest since November 2000. Italy’s bonds extended declines after the sale.

The indexes typically fall as investor confidence improves and rise as it deteriorates. The Markit CDX index has decreased from a more than two year high of 150.1 basis points on Oct. 3.

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.

Whirlpool Contracts Rise

Contracts tied to Whirlpool Corp. rose after the world’s largest maker of appliances lowered an annual profit forecast by as much as 36 percent and said it will cut 5,000 jobs.

Whirlpool swaps rose about 48 basis points to 252 basis points, the biggest one-day increase on record, according to data provider CMA.

Swaps on Avon Products Inc. rose 23 basis points to 145 basis points as the world’s largest door-to-door cosmetics company faced a U.S. Securities and Exchange Commission probe of its dealings with analysts. The SEC’s subpoena seeks information about the company’s contacts with financial analysts, Avon said yesterday.

--Editors: John Parry, Mitchell Martin

To contact the reporter on this story: Shannon D. Harrington in New York at

To contact the editor responsible for this story: Alan Goldstein at

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