Bloomberg News

Credit-Default Swaps in U.S. Climb on Europe Crisis Concern

May 30, 2012

A gauge of corporate credit risk increased by the most in more than two weeks as Spain grapples with measures to recapitalize its banks and the number of Americans signing contracts to buy previously owned homes fell.

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, rose 5.7 basis points to a mid-price of 122.4 basis points at 5:20 p.m. in New York, according to prices compiled by Bloomberg. The index jumped 6.2 basis points on May 14.

The measure surged as Spain’s biggest banks had the worst- performing junior bonds this month on concern investors will be wiped out in a rescue of the nation’s financial system. The index of pending home resales in the U.S. dropped 5.5 percent following a revised 3.8 percent gain the prior month, figures from the National Association of Realtors showed today in Washington.

Another report showed economic confidence in the euro area fell more than forecast in May to the lowest level in 2 1/2 years, the European Commission said today. A VPRC opinion poll for Epikaira magazine showed that Greece’s anti-austerity party Syriza had the support of 30 percent of voters, compared with 26.5 percent for New Democracy, which backs the terms of a European Union bailout.

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