Bloomberg News

Credit-Default Swaps in U.S. Fall to Lowest Level in Two Weeks

February 24, 2012

A benchmark gauge of U.S. company credit risk dropped to the lowest level in more than two weeks as economic reports showed America’s economy is weathering Europe’s sovereign-debt turmoil.

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 0.5 basis point to a mid-price of 96 basis points at 4:43 p.m. in New York, according to Markit Group Ltd.

The gauge slid as the Thomson Reuters/University of Michigan final index of U.S. consumer sentiment unexpectedly increased this month to 75.3 from 75 in January. The median estimate in a Bloomberg News survey called for a reading of 73, which was above 72.5, the preliminary figure. Purchases of new homes exceeded forecasts in January after climbing a month earlier to a one-year high, the Commerce Department reported.

The swaps index, which typically falls as investor confidence improves and rises as it deteriorates, ended at the lowest level since Feb. 8. 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.

Finance ministers and central bank governors from the Group of 20 nations meet tomorrow in Mexico and may discuss committing fresh cash to the International Monetary Fund to help defuse the European fiscal crisis.

To contact the reporter on this story: Dennis Fitzgerald in New York at dfitzgerald5@bloomberg.net

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


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