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A gauge of U.S. corporate credit risk advanced the most in three weeks amid concern that Italy may be left without a stable government and may need another election.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, increased 3.7 basis points to a mid-price of 90.1 basis points at 4:08 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest intraday gain since Feb. 4, when the measure jumped 4.2 basis points.
Partial election results suggested former Prime Minister Silvio Berlusconi may have built a blocking minority in the Senate to deny outright victory to Pier Luigi Bersani. Bersani, who led in opinion polls throughout the two-month race, campaigned to maintain the budget rigor of outgoing Prime Minister Mario Monti. The instability may stoke concern that the government will move away from austerity plans.
“Investors are definitely concerned about the Italian elections; Berlusconi seems to be leading now in the Senate and he can create pro-austerity coalition problems, pushing yields higher.” Adrian Miller, director of fixed-income strategy at New York-based GMP Securities LLC, said in a telephone interview.
The credit-swaps index typically rises as investor confidence deteriorates and falls 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.
Front-runner Bersani of the Democratic Party has vowed to continue the austerity program, while Berlusconi and Beppe Grillo have promised to overturn tax increases.
The risk premium on the Markit CDX North American High Yield Index rose 15.5 basis points to 450.7 basis points, the highest level in three weeks, Bloomberg prices show.
The average relative yield on speculative-grade, or junk- rated, debt widened 4.3 basis points to 507.3 basis points, data compiled by Bloomberg show.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.
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