U.S. Company Credit Risk Rises as Italy Borrowing Costs Surge

A benchmark gauge of U.S. corporate credit risk rose for a second day as European bond yields rose on concern that government upheaval in Italy and Greece may deepen the region’s debt crisis.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 0.4 basis point to a mid- price of 123.6 basis points at 4:51 p.m. in New York, according to index administrator Markit Group Ltd.

Italian 10-year borrowing costs surged to a euro-era record as the focus shifted from Greece after Prime Minister George Papandreou agreed to step down to create a new unity government. The swaps index pared a rise of as much as 2.8 basis points after the European Central Bank’s Juergen Stark predicted the fiscal crisis will be controlled within two years.

The measure, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from a more than two-month low of 113.4 basis points on Oct. 27 as investors have wagered that European leaders latest plan to stem turmoil in the region’s bond markets may fail to insulate bank balance sheets globally.

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