Bloomberg News

U.S. Company Credit Risk Rises on Europe Rescue Fund Concern

December 07, 2011

Dec. 7 (Bloomberg) -- A benchmark gauge of U.S. company credit risk reversed an earlier decline after a German government official said the country rejects proposals to combine the current and permanent euro-area rescue funds.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on company debt or to speculate on creditworthiness, rose 0.4 basis point to a mid-price of 122.1 basis points as of 8:40 a.m. in New York, according to data provider Markit Group Ltd. The index, which typically falls as investor confidence improves and rises as it deteriorates, earlier decreased as much as 1.4 basis points.

Traders pushed the measure higher after the German official told reporters in Berlin that the permanent European Stability Mechanism will take over from the current rescue fund at an appointed time. He spoke on condition of anonymity because the negotiations are private.

The benchmark gauge has decreased from 146 on Nov. 25 and plunged last week by the most since March 2009, after central banks globally coordinated to reduce emergency funding costs for European lenders.

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.

The Markit CDX North America High Yield Index, which falls as investor confidence deteriorates, dropped 0.1 percentage point to 92.7 percent of face value, Markit data show.

The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, fell 2.06 basis points to 40.5 basis points, the lowest level since Nov. 8, Bloomberg data show. That’s up from this year’s low of 13.06 on April 28, even after falling 10.89 basis points, the most in nine months, on Nov. 30 following the central banks’ actions.

--Editor:

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Pierre Paulden at ppaulden@bloomberg.net


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