Bloomberg News

Credit-Default Swaps in U.S. Fall for First Time in Six Days

May 10, 2012

A gauge of corporate credit risk fell for the first time in six days as claims for unemployment benefits in the U.S. declined last week, easing concern that the labor market is faltering.

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, dropped 0.7 basis point to a mid-price of 102.8 basis points at 4:57 p.m. in New York, according to prices compiled by Bloomberg.

The swaps index decreased as initial jobless claims pointed to a recovery in the U.S. labor market, offsetting concern over the turmoil in Greece, where political leaders are engaged in discussions to form a new coalition government.

“The big news of the day is jobless claims declining, which should comfort those who are concerned about the U.S. economy slipping,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York.

First-time claims dropped by 1,000 to 367,000 in the period ended May 5, the Labor Department said today in Washington. Claims are returning to levels reached in February and March, indicating a surge last month probably reflected difficulty in adjusting the data for an Easter holiday that came earlier this year.

New Coalition

Former Greek Finance Minister Evangelos Venizelos is attempting to form a new coalition government following elections on May 6 where no single party won an absolute majority.

The index reached 104.6 basis points yesterday, the most since April 10. The credit-default swaps measure typically falls as investor confidence improves and rises as it deteriorates.

The contracts 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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