Bloomberg News

U.S. Credit-Default Swaps Little Changed as Spanish Yields Climb

April 16, 2012

A benchmark gauge of U.S. company credit risk was little changed as a stronger-than-forecast increase in retail sales boosted optimism about the world’s largest economy, mitigating a rise in Spanish 10-year bond yields to a high for the year.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, was little changed at a mid-price of 101.5 basis points as of 4:19 p.m. in New York, according to Markit Group Ltd. 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 credit swaps index, which typically falls as investor confidence improves, held as retail sales gained 0.8 percent in March, almost three times as large as projected, Commerce Department figures showed today in Washington.

Jaime Garcia-Legaz, Spain’s deputy minister in the economy department, called on the European Central Bank to buy the nation’s debt to help stem financial-market turmoil. The country is scheduled to sell bonds tomorrow and on April 19 as the cost of insuring its debt against default touched a record.

Industrial companies including General Electric Co., Danaher Corp. (DHR:US), and Johnson Controls Inc. (JCI:US) are scheduled to report earnings this week.

Service Sector

Growth hasn’t been directionally indicative, so those earnings reports will be “your first taste of where things are going in that sector,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York.

The Institute for Supply Management’s non-manufacturing index showed service industries in the U.S. expanded less than forecast in March as orders grew at the slowest pace in three months. The gauge, which signals expansion with readings above 50, dropped to 56 from a one-year high of 57.3 in February, the Tempe, Arizona-based group’s data showed April 4.

The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, increased 0.31 basis point to 30.06 basis points. The measure falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

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


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Companies Mentioned

  • DHR
    (Danaher Corp)
    • $83.59 USD
    • 1.08
    • 1.29%
  • JCI
    (Johnson Controls Inc)
    • $50.17 USD
    • 0.10
    • 0.2%
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