U.S. Credit-Default Swaps Gauge Increases to Eight-Month High
The cost of protecting U.S. corporate bonds from default climbed to the highest in more than eight months.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, gained 0.5 basis point to a mid- price of 100.4 basis points as of 4:52 p.m. in New York, according to index administrator Markit Group Ltd. Contracts on Capital One Financial Corp. (COF) rose for a second day as it agreed to buy ING Groep NV’s online bank for $9 billion.
The CDX index jumped 3.1 basis points yesterday amid concern that Greece would default and data from industrial production to consumer prices signaled a slowdown in the economy. Trading in default swaps was thin today, said Rizwan Hussain, a credit strategist at Morgan Stanley in New York.
“Given the illiquidity of the market, people are sitting on their hands,” Hussain said.
The credit swaps index yesterday climbed above 100 basis points as violence erupted in Greece over budget cuts. Also Irish Finance Minister Michael Noonan said senior bondholders may have to share in losses of Ireland’s banks.
Noonan’s statement reversed a policy of protecting owners of senior securities and unnerved investors, Hussain said. The finance minister backtracked today, now saying there is “no urgency” about Ireland’s aim to share the burden of bailing out the banks with senior bondholders.
Liquid Contracts
Markit’s CDX North America High Yield Index, which declines as investor confidence deteriorates, fell 0.2 percentage point to 99.4 percent of face value.
Credit-swaps trading today was predominantly in the most liquid contracts, including the investment-grade corporate CDX index and contracts protecting bank debt, Hussain said.
Swaps on Mclean, Virginia-based Capital One climbed 9.6 basis points to 127.3 basis points, according to data provider CMA. The company will pay $6.2 billion in cash and $2.8 billion in stock for ING Direct USA, Amsterdam-based ING said today in a statement.
Credit-default swaps on San Francisco-based Wells Fargo & Co. (WFC) climbed 3.9 basis points to 106.9 basis points, according to CMA. Swaps on JPMorgan Chase & Co. (JPM), which is based in New York, added 4.6 basis points to 87.2, and those on Citigroup Inc. increased 6.4 basis points to 155.7, the data show. Contracts protecting the debt of American Express Co. (AXP) added 4.9 basis points to 87.5.
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: Mary Childs in New York at mchilds5@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
June 15 (Bloomberg) -- Jim Conklin, head of investment research at FX Concepts LLC, talks about the European debt crisis and the impact on the euro. He also discusses the outlook for the dollar and emerging market currencies. Conklin speaks with Bloomberg’s Paul Dobson at a conference in London. (Source: Bloomberg)
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