Bloomberg News

U.S. Company Credit-Default Swaps Climb on Europe Crisis Concern

December 13, 2011

Dec. 12 (Bloomberg) -- A benchmark gauge of U.S. credit risk rose as Moody’s Investors Service said it will review the ratings of European Union nations after last week’s summit failed to produce decisive steps to end the debt crisis.

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, added 3.7 basis points to a mid-price of 125.6 basis points as of 5:18 p.m. in New York, according to Markit Group Ltd.

The measure increased as European leaders’ fifth agreement in 19 months aimed at fixing the region’s sovereign crisis is failing to ease stress in debt markets, with 10-year Italian government bond yields climbing above 6.5 percent after falling on Dec. 9. Moody’s said there was the chance of “more severe scenarios,” including “multiple defaults” and “exits from the euro area.”

The index, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from 119.6 on Dec. 7 on investor concern that Europe’s fiscal crisis may spread, infecting bank balance sheets worldwide. The gauge had previously dropped from 146 on Nov. 25.

Credit-default 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.

--Editor: Alan Goldstein

To contact the reporters on this story: John Parry in New York at jparry5@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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