Bloomberg News

Credit Swaps in U.S. Fall as Bets Pared Before Greek Elections

June 14, 2012

A gauge of U.S. company debt risk fell as traders who pushed it to a more than five-month high pared bearish bets three days before Greek elections that may determine whether the nation has a future in the euro area.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, declined 4.6 basis points to a mid-price of 120.3 basis points at 5:16 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Kroger Co. (KR:US) dropped as the grocery-store chain boosted its annual profit forecast.

The index has alternated between gains and losses since reaching 127.5 basis points June 4, the highest since Dec. 19, on concerns that Europe’s escalating debt crisis will infect markets globally. Investors are awaiting the results of Greece’s election, which may decide whether the nation heads toward an exit from the 17-nation monetary union.

“The Greek vote is at the forefront of what everyone is looking at and that is leading to this choppiness,” said Robert Grimm, a trader at broker-dealer Odeon Capital Group LLC in Greenwich, Connecticut. “Those who have a strong opinion on what’s going to happen have already placed their bets. Those who are nervous a little bit are trying to close out their positions.”

Kroger Swaps

The index declined even as Labor Department data showed claims for jobless benefits in the U.S. unexpectedly increased, climbing by 6,000 to 386,000 in the week ended June 9 from a revised 380,000 the prior week that was more than first estimated. Economists projected claims would fall to 375,000, according to the median estimate.

Credit swaps on Kroger, the largest U.S. grocery-store chain, fell 18 basis points to a mid-price of 123 basis points, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Profit for the year ending Jan. 31 will be as much as $2.40 a share, up from a prior forecast (KR:US) of as much as $2.38, the company said in a statement today. That compares with the $2.32 average of 19 analysts’ estimates compiled by Bloomberg.

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

  • KR
    (Kroger Co/The)
    • $50.17 USD
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