Bloomberg News

Corporate Credit-Default Swaps in U.S. Fall on Budget Optimism

November 19, 2012

A gauge of U.S. corporate credit risk fell as President Barack Obama expressed confidence he will reach a budget agreement with Congress.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, dropped 3.3 basis points to a mid-price of 105.9 basis points at 8:26 a.m. in New York, according to prices compiled by Bloomberg.

A compromise by lawmakers on a deal to avert the so-called fiscal cliff may lessen investor concern that an economic slowdown will hinder companies’ ability to repay debt. The president met with senior Democrats and Republicans on Nov. 16 for talks to avoid $607 billion in spending cuts and tax increases set to take effect next year.

“I am confident we can get our fiscal situation dealt with,” Obama said yesterday at a news conference in Bangkok.

The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. 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: Peter Rawlings in New York at prawlings@bloomberg.net

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


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