A benchmark gauge of U.S. company credit risk fell for a tenth day as banks, hedge funds and other money managers moved trades into a new version of the index.
Series 18 of the Markit CDX North America Investment Grade Index (IBOXUMAE), which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined to 88 basis points as of 4:46 p.m. in New York, after trading as high as 92 basis points earlier, according to broker Phoenix Partners Group. The new version ended about 6 basis points higher than Series 17, Phoenix data show. The old series reached the lowest level yesterday since March 9, 2011, Markit data show.
New versions of Markit Group Ltd.’s index, which typically rises as investor confidence deteriorates, are created every six months. Companies are replaced if they no longer have appropriate credit grades, aren’t among the most actively traded borrowers, or fail to meet other criteria.
The roll is “a little bit technical for the market, and a lot annoying for most clients,” according to Peter Tchir, founder of TF Market Advisors in New York. Traders wanting to buy protection often wait until after the roll to enter, especially when the market has been rallying, he said.
Starwood Hotels & Resorts Worldwide Inc. (HOT) replaced Black & Decker Corp., the toolmaker acquired by Stanley Works. Exelon Corp. will take the place of Constellation Energy Group Inc., the Baltimore-based company it acquired this month.
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.
This measure touched 84.7 basis points yesterday, the lowest level since March 2011, on optimism about the strength of the world’s biggest economy after the Federal Reserve raised its assessment at a March 13 policy meeting.
The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, widened 1.3 basis points to 26.75 basis points. The measure rises when investors seek the perceived safety of government securities and falls when they favor assets such as corporate bonds.
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