A benchmark gauge of U.S. company credit risk touched the highest level in more than two months and the cost to protect U.S. bank debt against losses climbed as a surge in Spanish and Italian bond yields stoked concern that Europe’s debt crisis is worsening.
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, climbed for a fifth day, adding 2.1 basis points to a mid-price of 104.1 basis points at 5:17 p.m. in New York, according to Markit Group Ltd. The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, touched 105 basis points, the highest level since Jan. 25.
Spanish bonds tumbled as Economy Minister Luis de Guindos declined to rule out a rescue for the nation after 10 billion euros ($13 billion) of additional budget cuts failed to alleviate investor concerns that the European financial crisis will spread to Spain. The contracts also climbed after China reported an unexpected trade surplus last month as import growth trailed forecasts. The U.S. payrolls report showed last week that America’s employers added fewer jobs in March than economists had forecast.
The widening of credit-default swaps tied to bank bonds is “really a reflection of the macro environment and the concerns the market has over Europe,” said Adam Steer, an analyst at Brookfield Investment Management Inc., whose parent Brookfield Asset Management Inc. oversees about $150 billion in assets. “They’ve been very correlated with U.S. macro news as well as Europe macro news it seems for a while now, and that’s what we’re seeing today.”
Bank Swaps Jump
Credit-default swaps on Charlotte, North Carolina-based Bank of America Corp. added 25.3 basis points to 295 basis points, the highest level since Feb. 15, and those on JPMorgan Chase & Co. increased 8.5 basis points to 118.4 as of 4:30 p.m. in New York, according to data provider CMA. Contracts tied to Citigroup Inc., based in New York, climbed 22.4 basis points to 272.9, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Yesterday the average of the six biggest U.S. banks reached the most since Feb. 15, according to CMA data. 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.
The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, climbed 2.86 basis points to 31.69 basis points, the widest since Jan. 30. The measure rises when investors seek the perceived safety of government securities and falls when they favor assets such as corporate bonds.
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