Bloomberg News

U.S. Company Credit Swaps Decline as Consumer Confidence Surges

December 28, 2011

Dec. 27 (Bloomberg) -- A benchmark gauge of U.S. company credit risk fell to the lowest level in almost three weeks after data signaled consumer confidence rising to the highest since April.

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, decreased 1 basis point to a mid-price of 120.7 basis points at 4:18 p.m. in New York, according to Markit Group Ltd. The index fell as low as 120.3, the lowest since Dec. 8.

The gauge, which typically declines as investor sentiment improves and rises as it deteriorates, has dropped from 132.1 on Dec. 19 as data signaled the U.S. economy, the world’s largest, is recovering. The Conference Board’s gauge of confidence among consumers rose to an eight-month high of 64.5 in December, exceeding all estimates in a Bloomberg News survey and outweighing data showing home prices fell more than forecast.

“We’re beginning to get the turning point where the consumer is beginning to say, ‘you know what, it’s really not that bad,’ ” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. said in a telephone interview. Improving consumer confidence is “another line of defense to counter against the euro zone fallout.”

Optimism surged even as the S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent in October from the same month in 2010, showing that housing remains weak.

The index, which climbed from as low as 117.7 on Dec. 8, is headed for its first annual increase since 2008. 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, Mitchell Martin

To contact the reporter on this story: 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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