Default Swaps in U.S. Drop for First Time in Four Days

A benchmark gauge of U.S. credit risk eased for the first time in four days after progress on Greece’s debt swap and a report the Federal Reserve is discussing a new type of bond-buying program.

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 0.5 basis point to a mid-price of 97.3 basis points at 5:12 p.m. in New York, according to Markit Group Ltd. Contracts on Citigroup Inc. and American Express Co. also dropped.

The gauge slid as investors with 58 percent of the Greek bonds eligible for the nation’s debt swap have indicated they’ll participate, bringing the total to at least 120 billion euros ($157 billion). The swaps index also declined as the Wall Street Journal reported that Fed officials are considering a program that would seek to buy long-term mortgage or Treasury bonds while at the same time effectively tying up the money to limit concerns it will stoke inflation later.

The market is rallying on the increasing participation rate in the Greek private-sector-involvement and that “the Fed is working on other ways to pump money into longer-dated bonds and mortgages,” according to Peter Tchir, founder of New York-based hedge fund TF Market Advisors. The program the Fed is discussing would “definitely help banks make money on their mortgage inventory, but how much would filter into the real economy remains a question,” he said.

Highest Level

The default-swaps index, which typically falls as investor confidence improves and rises as it deteriorates, touched 98.3 basis points yesterday, the highest level since Feb. 22. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

Credit-default swaps on Citigroup declined 12.8 basis points to 215.9, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Contracts on American Express decreased 3.2 basis points to 83.6, the data show. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

U.S. companies added 216,000 workers to payrolls in February after a gain of 173,000 in the previous month, according to a report today from Roseland, New Jersey-based ADP Employer Services. The Labor Department may say March 9 U.S. payrolls increased by 210,000 last month after rising by 243,000 in January, according to the median forecast of 86 economists in a Bloomberg News survey. The unemployment rate probably held at a three-year low of 8.3 percent.

The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, fell for the first time in three days, declining 2.32 basis points to 25.08 basis points. The gauge narrows when investors favor assets such as corporate bonds and widens when they seek the perceived safety of government securities.

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

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