Bloomberg News

U.S. Corporate Credit Risk Drops as Central Banks Add Liquidity

December 01, 2011

Nov. 30 (Bloomberg) -- A benchmark gauge of U.S. credit risk plunged, recording its biggest three day decline since May 2010, after central banks acted jointly to make additional funds available to banks, aiming to ease strains on lending to businesses and households.

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, dropped 11.8 basis points to a mid-price of 127.7 basis points at 5:11 p.m. in New York, according to Markit Group Ltd.

Investors pushed the measure lower after the Federal Reserve and five other central banks agreed to reduce the interest rate on dollar liquidity swap lines by 50 basis points and extend their authorization through Feb. 1, 2013.

The index, which typically falls as investor confidence improves, has declined from 146 basis points on Nov. 25 as Europe’s leaders have sought to prevent the region’s debt crisis from spreading and infecting bank balance sheets worldwide.

Interest rate swap spreads, a measure of stress in credit markets, fell. The difference between the two-year swap rate and the comparable-maturity Treasury note yield narrowed 10.89 basis points to 41.55 basis points, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Pierre Paulden at

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