Bloomberg News

Default Swaps in U.S. Fall on Greek Approval for Austerity Plan

February 13, 2012

Feb. 13 (Bloomberg) -- A benchmark gauge of U.S. company credit risk declined for the first time in three days, as Greek lawmakers approved budget cuts, paving the way to secure an international bailout.

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 2.3 basis points to a mid-price of 96.5 basis points at 4:39 p.m. in New York, according to Markit Group Ltd. The cost to protect the debt of Cable & Wireless Worldwide Plc and NXP Semiconductors NV also fell.

Germany and the European Commission welcomed Greek approval of the austerity steps, raising the possibility of euro finance chiefs approving the 130 billion-euro package for Greece. Global stocks and the euro rose after the Greek parliament passed the legislation. European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters the backing “is a crucial step forward toward the adoption of the second program.”

“The market is cheering the political actions but maybe fearing the civil actions,” said Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP in an e- mail.

Rioters set fire to buildings during violent street protests against government austerity measures in central Athens late yesterday and overnight, Greek police said.

Violent Protests

The swaps index, which typically falls as investor confidence improves and rises as it deteriorates, touched 94.1 basis points on Feb. 9, the lowest level since August, as investors wager that European leaders may prevent the region’s fiscal crisis from spreading.

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.

Swaps tied to Cable & Wireless declined by 311.3 basis points to 476.1 basis points, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Vodafone Group Plc said it’s evaluating a potential bid for the British fiber- network operator. Contracts linked to NXP fell 58.4 to 565.3, according to CMA. NXP, a Dutch chipmaker, is seeking as much as $475 million of new loans to help repay notes due October 2015.

--Editors: 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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