A benchmark gauge of U.S. corporate credit risk declined as former European Union Competition Commissioner Mario Monti rushed to form a new Italian government to restore confidence in the country’s finances.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 1.6 basis points to a mid-price of 128 basis points at 11:10 a.m. in New York, according to index administrator Markit Group Ltd. U.S. bond markets were closed on Nov. 11.
The credit-default swaps measure, which typically falls as investor confidence improves and rises as it deteriorates, has dropped from 150.1 basis points on Oct. 3 as investors bet European leaders may stop the spread of the region’s debt crisis. Monti will try to reassure investors that Italy can reduce a 1.9 trillion-euro ($2.6 trillion) debt load and spur economic growth that has lagged behind the euro-region average for more than a decade.
“Monti will have to prove that he’s capable of implementing some pretty drastic reforms to bring Italy’s budget deficit and enormous debt under control,” Harvard University professor Niall Ferguson said on Bloomberg Television’s “Inside Track” with Erik Schatzker. The country’s benchmark 10-year bond yield surged last week over the 7 percent threshold that prompted Greece, Ireland and Portugal to seek bailouts, declining to 6.4 percent at 11:15 a.m. in Rome after Italy auctioned debt today.
As Monti met with leaders of the country’s political parties to discuss Cabinet nominees, Italy sold 3 billion euros of five-year bonds, the maximum target, at the highest yield in more than 14 years. The Rome-based Treasury sold the bonds to yield 6.29 percent, the highest since June 1997 and up from 5.32 percent at the last auction on Oct. 13.
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.