Bloomberg News

U.S. Company Credit Risk Jumps to Month High on Europe Concern

November 17, 2011

Nov. 17 (Bloomberg) -- A benchmark gauge of U.S. credit risk rose to the highest level in more than a month as concern grew that Europe’s debt crisis may worsen.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 2.4 basis points to a mid-price of 136.4 basis points at 5:11 p.m. in New York, according to index administrator Markit Group Ltd. That’s the highest level since Oct. 10. Credit- default swaps on insurers, led by MetLife Inc. and Prudential Financial Inc. also jumped.

“It just feels pretty unsettling,” Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP in Los Angeles, which oversees $19.5 billion, said in a telephone interview. “There’s significant fear out there in the markets.”

Traders pushed the index higher after German Chancellor Angela Merkel rejected French calls to deploy the European Central Bank as a backstop to curb upheaval in the region’s bond markets. Spanish and French borrowing costs rose on concern that Europe’s debt crisis may spread, tainting bank balance sheets globally, and interest-rate swap spreads, a measure of stress in credit markets, rose to the highest in more than two years.

The U.S. swaps index, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from a two-month low of 113.4 basis points on Oct. 27.

Insuring Insurers

Credit-default swaps on MetLife climbed for a fourth day, jumping 31.2 basis points to 354.4 basis points, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Contracts on Prudential added 29.7 basis points to 289, and those on Radian Group Inc. climbed 2.5 percentage points to 50.6 percent upfront, the data show.

Interest-rate swap spreads climbed to the highest level since June 2009. The difference between the two-year swap rate and the comparable-maturity Treasury note yield increased 0.1 basis point to 52.4, Bloomberg data 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.

--Editors: John Parry, Pierre Paulden

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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