Bloomberg News

Default Swaps Rise

May 11, 2012

A gauge of corporate credit risk rose to the highest level in more than three months after JPMorgan Chase & Co. (JPM:US) reported a $2 billion dollar trading loss.

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, added 2 basis points to a mid-price of 106.1 basis points at 8:44 a.m. in New York, according to prices compiled by Bloomberg.

The swaps index climbed as JPMorgan’s Chief Executive Officer Jamie Dimon said an “egregious” failure on its synthetic credit securities led to losses in its chief investment office. The positions may cost an additional $1 billion this quarter or next, he told analysts yesterday.

The credit-default swaps measure, which typically rises as investor confidence deteriorates and falls as it improves, last closed at a higher level on Jan 19 at 108.1 basis points. 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: Richard Bravo at rbravo5@bloomberg.net


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Companies Mentioned

  • JPM
    (JPMorgan Chase & Co)
    • $59.77 USD
    • -0.47
    • -0.79%
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