Bloomberg News

Credit Swaps in U.S. Unchanged After Housing, Confidence Data

June 26, 2012

A benchmark gauge of U.S. corporate credit risk was little changed after reports showed home prices fell at the slowest pace in more than a year and consumer confidence declined ahead of a European Union summit.

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, slipped 0.4 basis point to a mid-price of 119.1 basis points at 4:23 p.m. in New York, according to prices compiled by Bloomberg.

Consumer confidence dropped for a fourth straight month in June to 62, down from a revised 64.4 in May, data from the Conference Board showed. Investors are bracing for a summit of EU leaders, Adrian Miller, director of global markets strategy at GMP Securities LLC in New York, said. The meeting, which starts in Brussels on June 28, will be the 19th since the debt crisis broke out in early 2010.

The market is “fairly comfortable from the standpoint of portfolio insurance going into the EU leaders’ summit,” he wrote in an e-mail. While the credit derivative indexes will move on headlines or data, “in general investors are positioned as needed.”

Moody’s announced downgrades of 28 Spanish banks yesterday, including Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), the nation’s largest lenders. The ratings cut follows a reduction of the sovereign’s credit ranking by three steps on June 13 to Baa3 from A3. Euro-area leaders are set to debate additional stimulus measures, including further integration of the currency bloc through joint debt sales, at the two-day summit.

Property Values

The S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April compared with the year-earlier period, the smallest decline since November 2010. Economists had forecast a 2.5 percent drop, according to the median of 28 estimates in a Bloomberg News survey.

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: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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