U.S. Company Credit Risk Declines as ECB Unexpectedly Cut Rates

A benchmark gauge of U.S. corporate credit risk declined by the most in a week after the European Central Bank unexpectedly cut interest rates.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 3.9 basis points to a mid-price of 121.5 at 9:08 a.m. in New York, according to index administrator Markit Group Ltd.

Traders pushed the gauge lower after ECB officials, meeting under the presidency of Mario Draghi for the first time, lowered the benchmark interest rate by 25 basis points to 1.25 percent, wrong-footing 51 of 55 economists in a Bloomberg News survey. Four predicted a quarter-point move and two expected a half- point reduction.

The index earlier declined on optimism that Greek Prime Minister George Papandreou’s ruling party won’t proceed with a referendum on the country’s membership of the euro, before a confidence vote in parliament tomorrow. The measure, which typically falls as investor confidence improves and rises as it deteriorates, has declined from a more than two-year high of 150.1 basis points on Oct. 3 as investors have bet that European leaders will prevent the region’s sovereign debt crisis from contaminating bank balance sheets worldwide.

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: John Parry in New York at jparry5@bloomberg.net

To contact the editor responsible for this story: Pierre Paulden at ppaulden@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.