Bloomberg News

Credit Swaps in U.S. Fall on Signs Greece May Stay in the Euro

May 29, 2012

An index of corporate credit risk declined as concern lessened that Greece would leave the euro even as a gauge of U.S. consumer confidence slipped to a four- month low.

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 0.8 basis point to a mid-price of 116.8 basis points at 3:57 p.m. in New York, according to prices compiled by Bloomberg. The index last closed lower at 114.7 basis points on May 14. Contracts linked to Eastman Chemical Co. (EMN:US) declined by the most in more than two years.

The gauge declined after polls showed voters in Greece may support politicians backing the nation’s bailout, diminishing the chance that the country will leave the single currency. The Conference Board’s index of U.S. consumer confidence unexpectedly fell to 64.9 this month from a revised 68.7 in April.

“There’s a positive tone in the credit markets with the possibility that Greece may stay in the euro,” Mark Pibl, head of credit strategy at broker-dealer Cortview Capital Securities LLC, said in a telephone interview.

The median forecast of 70 economists surveyed by Bloomberg News called for a confidence reading of 69.6. Estimates ranged from 62 to 74.1. The measure averaged 53.7 during the 18-month recession that ended in June 2009.

Eastman CDS

The cost to protect against losses on the debt of Eastman decreased as the biggest U.S. producer of chemicals from coal is issuing more than $2 billion of bonds.

Credit Swaps on the Kingsport, Tennessee-based company fell 8.2 basis points to a mid-price of 106.7 at 3:54 p.m., Bloomberg data show. That’s the biggest decline since May 11, 2010 when it dropped 12.3 basis points.

The swaps gauge typically falls as investor confidence improves and rises as it deteriorates. 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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Companies Mentioned

  • EMN
    (Eastman Chemical Co)
    • $77.56 USD
    • -0.44
    • -0.57%
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