Bloomberg News

U.S. Bank Credit Swaps Jump as Greece Calls for Bailout Vote

November 01, 2011

Nov. 1 (Bloomberg) -- The cost to protect against defaults by U.S. banks and companies jumped on concern that Greece’s move to call a referendum could derail Europe’s bailout plan.

The Markit CDX North America Investment Grade Index, a credit-default swaps index that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 6 basis points to a mid-price of 126.8 at 10:39 a.m. in New York, according to index administrator Markit Group Ltd. Over two days, the measure has jumped the most since Sept. 22. Swaps on Morgan Stanley climbed the most since Oct. 3 and contracts on banks including Goldman Sachs Group Inc. and Bank of America Corp. rose.

The Markit CDX index, which typically rises as investor confidence deteriorates and falls as it improves, has increased from a more than two-month low of 113.4 basis points on Oct. 27. Traders pushed the gauge higher after Greek Prime Minister George Papandreou called a confidence vote and a referendum on the accord struck last week by European policy makers, stoking concerns that any setback to the region’s rescue package could dent bank balance sheets and erode creditworthiness globally.

“If the Government loses these votes, the most recent plan would be for naught and Greece would surely head toward an unscripted default and contagion would likely follow,” Adrian Miller, fixed-income strategist at Miller Tabak Roberts Securities LLC in New York, wrote in a note to clients and reporters.

The confidence vote is scheduled to conclude Nov. 4.

Morgan Stanley

Swaps on Morgan Stanley climbed 41 basis points to 383 basis points, according to London-based data provider CMA. That’s the biggest jump in almost a month.

Contracts on Goldman Sachs rose 28 basis points to 314 basis points, CMA data show.

Swaps on Bank of America jumped 25 basis points to 360 basis points, according to broker Phoenix Partners Group.

Contracts on Citigroup Inc. increased 13 basis points to 245, Phoenix prices show.

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.

--With assistance by Shannon D. Harrington in New York. Editors: Mitchell Martin, Pierre Paulden, John Parry

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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