The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 3 basis points to a mid-price of 98.4 basis points as of 5:03 p.m. in New York, according to Markit Group Ltd.
The credit swaps index, which typically falls as investor confidence improves and rises as it deteriorates, decreased after Spain sold 12- and 18-month bills, a day after borrowing costs climbed to the highest level this year. The IMF increased its outlook for global growth in 2012 to 3.5 percent from 3.3 percent and lifted its forecast for the U.S. expansion to 2.1 percent from 1.8 percent.
The market is “breathing a sigh of relief,” according to Michael Kraft, senior portfolio manager at Vanderbilt Avenue Asset Management LLC. “Europe is feeling a little better (i.e. Spain’s auction went reasonably well), the improved IMF growth forecast and general optimism regarding corporate earnings” are pushing the index tighter, he wrote in an e-mail.
The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, narrowed 1.36 basis points to 28.75 basis points. The measure falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities.
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.
The cost to protect insurers’ debt from default for five years declined. Credit-default swaps on Hartford Financial Services Group Inc. (HIG) fell 12 basis points to 235 basis points as of 4:30 p.m. in New York, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The contracts eased after Allianz SE (ALV), Hartford’s No. 3 shareholder, endorsed the U.S. company’s plan to scale back its business.
“We are very supportive of the actions the management team is taking to position the company for long-term success and deliver greater value to shareholders,” Allianz Chief Executive Officer Michael Diekmann said of Hartford today in a statement from the U.S. firm. Hartford CEO Liam McGee is shrinking the firm as he fends off calls from his biggest shareholder, billionaire hedge-fund manager John Paulson, to break the company in two.
Credit-default swaps tied to Travelers Cos. eased 5.3 basis points to 79.5, and those on Wells Fargo & Co. (WFC) declined 7.9 basis points to 93.5, the data show.
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