Credit-Default Swaps Slide on Prospect of Fed Buying More Debt
The cost of protecting corporate bonds from default in the U.S. declined for a fourth straight day after Federal Reserve Chairman Ben S. Bernanke said the central bank may boost purchases of debt.
“It’s the notion that the pedal is still down,” said Michael Kraft, senior portfolio manager at Crimson Capital Trading LLC in New York. “The Fed is going to keep the cheap liquidity, they’re going to keep the securities purchases coming.”
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 0.8 basis point to a mid- price of 90.8 basis points as of 5:20 p.m. in New York, according to index administrator Markit Group Ltd.
The index has declined from 99.4 basis points on Nov. 30 amid speculation that European Central Bank policy makers will ramp up measures to contain the region’s sovereign debt crisis and following comments Bernanke made on CBS Corp.’s “60 Minutes” program yesterday.
The Fed chairman indicated U.S. unemployment may take five years to fall to a normal level and Fed purchases of government debt beyond the $600 billion announced are “possible.”
Payrolls in November increased by 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, after a revised 172,000 gain the prior month, Labor Department figures showed Dec. 3. The median forecast of 87 economists in a Bloomberg News survey was for 150,000 more jobs.
The credit-swaps index 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.
Swaps on a unit of New York-based Verizon Communications Inc. fell after Kaufman Brothers LP analyst Shaw Wu said in a report today that the biggest U.S. mobile-phone carrier may reach an agreement with Apple Inc. to prevent Sprint Nextel Corp. and T-Mobile USA from offering the iPhone.
“They get the iPhone which is the hottest phone on the market, and they don’t lose share to AT&T which is good,” Wu said in an interview. “In fact, they might start gaining share back to the good old days.”
Contracts on Verizon Wireless Capital fell 6.7 basis points to 47.1, according to data provider CMA.
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