Bloomberg News

Credit Swaps in U.S. Fall as Draghi Signals Commitment to Euro

July 26, 2012

A gauge of U.S. speculative-grade corporate debt risk fell the most in almost a month after European Central Bank President Mario Draghi said policy makers will do whatever is necessary to preserve the euro.

The Markit CDX North America High Yield Index, a credit- default swaps benchmark used to hedge against losses on high- yield debt or to speculate on creditworthiness, declined 18.2 basis points, the biggest drop since June 29, to a mid-price of 594.7 basis points at 4:43 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to The New York Times Co. (NYT:US), dropped the most since October and those on PulteGroup Inc. (PHM:US) fell the most since January.

Record Spanish bond yields this week and Greece’s struggle to meet deficit reduction targets tied to its bailout have stoked investor concern that Europe’s debt crisis is deepening and may hinder companies’ ability to repay borrowings. Draghi said today in a speech in London that it’s within the mandate of the central bank to temper the “premia” on government bonds when they hinder monetary policy.

“To really solve the problem, you’ve got to have some pretty significant action,” Edward Meigs, a high-yield portfolio manager at First Eagle Investment Management LLC, said in a telephone interview. “There are some pretty deep problems that need to be addressed and that, we really haven’t seen yet.”

The yield on Spanish 10-year notes fell 45 basis points to 6.93 percent, the lowest level this week, at 12:04 p.m. in New York, Bloomberg data show.

Claims Drop

The number of Americans filing first-time claims for unemployment benefits dropped more than forecast last week, decreasing by 35,000 to 353,000, Labor Department figures showed today. Economists had called for a decline to 380,000, according to the median estimate in a Bloomberg News survey.

A separate report from the Commerce Department showed orders for U.S. durable goods rose a more-than-forecast 1.6 percent in June, the second monthly gain. The median estimate of economists surveyed by Bloomberg News projected a 0.3 percent climb.

The default premium on the Markit CDX North America Investment Grade Index decreased 4.2 basis points, the biggest drop since June 29, to 111.3 basis points at 4:30 p.m. in New York, Bloomberg prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 9 basis points to 170 basis points.

Digital Subscriptions

Credit-default swaps on Times Co., the newspaper publishing company, fell 27.4 basis points to 279.9 basis points, Bloomberg prices show, after the company said digital subscriptions to the New York Times and International Herald Tribune rose 81 percent in the second quarter from the year-earlier period and 12 percent from the first quarter. That’s the biggest drop since the contracts fell 43 basis points on Oct. 27.

PulteGroup, the largest U.S. homebuilder by revenue, said today second-quarter net income was $42.4 million, or 11 cents a share, beating the average estimate of 6 cents a share called for by 10 analysts surveyed by Bloomberg News.

The cost to guard against losses on the debt of PulteGroup fell 18.4 basis points, the biggest drop since January, to a mid-price of 322.9 basis points, Bloomberg data show.

“There’s a lot of positive buzz about homebuilders,” Meigs said. “A lot of sort of less-bad earnings. That’s certainly being construed as a positive.”

Credit-default swaps typically rise as investor confidence deteriorates and fall as it improves. The 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: Brooke Sutherland in New York at

To contact the editor responsible for this story: Alan Goldstein at

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Companies Mentioned

  • NYT
    (New York Times Co/The)
    • $13.28 USD
    • 0.14
    • 1.05%
  • PHM
    (PulteGroup Inc)
    • $20.47 USD
    • 0.68
    • 3.32%
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