Bloomberg News

Credit-Default Swaps in U.S. Unchanged as Unemployment Drops

January 06, 2012

Jan. 6 (Bloomberg) -- A benchmark gauge of company credit risk was unchanged as concern that Europe’s debt crisis may intensify outweighed an unexpected drop in U.S. unemployment to the lowest level in almost three years.

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, rose by 0.1 basis point to 120.1 basis points at 4:39 p.m. in New York, according to Markit Group Ltd. Swaps on McDonald’s Corp., the world’s largest restaurant company, fell about 2 basis points to 22.7, according to data provider CMA.

While a Labor Department report showed the U.S. unemployment rate fell last month to 8.5 percent, the lowest level since February 2009, European economic data deepened concern that the region’s fiscal upheaval could cause recession and infect bank balance sheets worldwide.

“Today’s jobs report was good in that perspective, but the market didn’t seem to care,” Anthony Valeri, a San Diego-based market strategist at LPL Financial, which manages $330 billion, said in a telephone interview. “It’s focusing on Europe.”

An index of executive and consumer sentiment in the 17- nation euro area fell to 93.3 in December, the European Commission in Brussels said today. Factory orders in Germany, the region’s largest economy, dropped 4.8 percent in November, the most in almost three years, according to the Economy Ministry in Berlin.

The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from 118.1 on Jan. 3.

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.

--With assistance from Mary Childs in New York and Svenja O’Donnell in London. Editors: John Parry, Shannon Harrington

To contact the reporter on this story: Zeke Faux in New York at zfaux@bloomberg.net

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


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