Bloomberg News

Default Swaps in U.S. Fall From 2012 High on China Growth Steps

May 21, 2012

A gauge of U.S. corporate credit risk fell from the highest level of the year as China pledged to take measures to boost economic growth.

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 1.3 basis points to a mid-price of 122.1 basis points at 8:41 a.m. in New York, according to prices compiled by Bloomberg. The index had closed at 123.4 Friday, the highest since Dec. 21.

The gauge declined after Chinese Premier Wen Jiabao said over the weekend that the country will focus on bolstering growth. Economic expansion in the world’s second-largest economy is critical for American corporations relying on international activity to expand sales and improve balance sheets.

The swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.

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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