Bloomberg News

Default Swaps in U.S. Decline for First Time in Two Weeks

May 18, 2012

A gauge of U.S. corporate credit risk fell from the highest level of the year as the Group of Eight leaders meet to discuss ways to contain Europe’s debt crisis.

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 2.4 basis points to a mid-price of 120.8 basis points at 8:45 a.m. in New York, according to prices compiled by Bloomberg. That’s the first decline for the index in 12 trading days.

G-8 leaders are expected to pressure European leaders including German Chancellor Angela Merkel to take additional steps to stem the sovereign debt crisis as concern over Greece’s withdrawal has pushed the swaps gauge wider this month.

The index, which typically falls as investor confidence improves and rises as it deteriorates, has jumped by more than 25 basis points this month as Greece heads for another round of elections. The gauge closed at 123.2 basis points yesterday, the highest level this year.

The swaps 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. The index last closed at a higher level on Jan. 5.

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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