Bloomberg News

U.S. Company Credit-Default Swaps Decline on Fed Rate Outlook

January 26, 2012

Jan. 25 (Bloomberg) -- A gauge of U.S. company credit risk fell to a five-month low after Chairman Ben S. Bernanke said the Federal Reserve is considering additional asset purchases to boost growth and central bank officials said their benchmark interest rate will stay low until at least late 2014.

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, declined 1.8 basis points to a mid-price of 102 basis points at 5:33 p.m. in New York, according to Markit Group Ltd.

The measure, which typically falls as investor confidence improves and rises as it deteriorates, declined to the lowest level since reaching 97.5 basis points on Aug. 3.

Policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress” Bernanke said at a news conference today, after the Federal Open Market Committee said in a statement it “expects to maintain a highly accommodative stance for monetary policy.” Earlier, the swaps index rose as Greek debt talks were locked in disagreement, raising concerns that European leaders may fail to contain the region’s fiscal crisis.

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.

--Editor: John Parry

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

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


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