Bloomberg News

Credit Swaps in U.S. Rise as Jobless Claims Top Estimates

April 19, 2012

A benchmark gauge of U.S. company credit risk increased for a second day as more Americans than forecast filed for unemployment benefits and home sales fell, casting doubt on the pace of economic growth.

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, rose 0.6 basis point to a mid-price of 100 basis points at 5:15 p.m. in New York, according to prices compiled by Bloomberg.

Traders pushed the measure higher as jobless claims fell by 2,000 to 386,000 in the week ended April 14 from a revised 388,000 the prior period, Labor Department figures showed today in Washington. The median forecast of 47 economists surveyed by Bloomberg News called for a drop to 370,000, raising concerns that a faltering economy might degrade the credit quality of American corporations.

Sales of previously owned homes unexpectedly dropped. House purchases fell 2.6 percent to a 4.48 million annual rate in March, the National Association of Realtors reported in Washington.

The swaps gauge reversed an earlier drop as Morgan Stanley, the owner of the world’s biggest brokerage, reported an increase in fixed-income trading revenue and Bank of America Corp., the second-largest U.S. lender, said profit rose amid a rebound in trading and better credit quality.

Corporate Defaults Rise

The index, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from a one- year low of 85.5 on March 19.

Standard & Poor’s said 28 corporate debt issuers have defaulted globally year-to-date, increasing from 11 in the same period last year, according to a report today from analysts led by Diane Vazza. The total includes Residential Capital LLC, whose long-and short-term issuer credit grades S&P lowered to selective default on April 18, after the company failed to make a scheduled interest payment on its senior unsecured notes that mature in April 2013, the ratings firm said.

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.

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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