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Markit CDX Credit-Default Swaps Benchmark in U.S. Declines for Third Day
A gauge of corporate credit risk in the U.S. fell for the third day, reaching a monthly low as concerns eased that the country will relapse into recession and that Europe’s debt crisis will infect global markets.
The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 1.7 basis points to a mid-price of 102.9 basis points as of 2 p.m. in New York, the lowest since Aug. 9, according to Markit Group Ltd. Contracts on Transocean Ltd. fell to a more than three-month low.
The Markit CDX index has dropped 11.6 basis points this month as better-than-forecast jobs data reduced speculation the U.S. will enter a double-dip recession and as more demand for European government bonds damps concerns that leaders will fail to contain the continent’s sovereign debt crisis. Markets absorbed more than $38 billion of dollar-denominated bonds this week, including the busiest day in more than seven months on Sept. 7. Yields hovered near record lows.
“Clearly, the demand for paper remains strong, despite the rate environment and resulting record-low coupons,” Barclays Capital strategists led by Jeffrey Meli and Bradley Rogoff in New York wrote today in a note to clients. “We remain moderately constructive on credit through year-end.”
Swaps on Transocean, the owner of the rig that exploded in April and triggered the worst U.S. offshore oil spill on record, dropped as FBR Capital Markets analysts said the company’s legal liability in the accident is “likely to be far lower than the $6 billion to $7 billion” priced into its stock. The contracts fell 39 basis points to 316, according to data provider CMA.
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: Shannon D. Harrington in New York at sharrington6@bloomberg.net
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