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U.S. Company Credit Risk Gauge Declines on Europe, U.S. Economy Optimism

A benchmark gauge of U.S. credit risk fell, snapping a four-day climb, as Italian and Spanish bond yields dropped and analysts forecast the U.S. economy may grow at its fastest pace in 18 months.

The Markit CDX North America Investment Grade Index of credit default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 0.6 basis point to a mid-price of 135.9 basis points at 4:52 p.m. in New York.

The index, 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 wagered European policy makers may contain the region’s debt crisis. Optimism is rising that the world’s biggest economy is gaining traction after data this week showed retail sales improved and fewer Americans filed for unemployment. Analysts are increasing their forecasts for the fourth quarter, reducing investor concern about an economic slowdown.

After the European Central Bank bought Italian and Spanish sovereign debt, the yield on the Italian two-year note fell 20 basis points to 6.06 percent at 7:15 a.m. in New York.

In the U.S., economists at JPMorgan Chase & Co. in New York now see gross domestic product rising 3 percent in the final quarter, up from a previous prediction of 2.5 percent.

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: John Parry at jparry5@bloomberg.net

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