Credit-Default Swaps in U.S. Rise for First Time in Three Days

An index of U.S. corporate credit rose for the first time in three days, reversing declines in late trading. The gauge fell earlier as China cut interest rates for the first time since 2008 to curb a slowing economy.

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, rose 0.2 basis points to a mid-price of 121.9 basis points at 5:04 p.m. in New York, according to prices compiled by Bloomberg. The gauge had fallen by as much as 3.1 basis points earlier in the day. Swaps tied to Capital One Financial Corp. (COF) decreased by the most in almost five months.

China’s benchmark one-year lending rate will drop to 6.31 percent from 6.56 percent effective today, the People’s Bank of China said on its website. The move comes as investors have pushed the U.S. swaps measure lower from a more than five-month high of 127.5 basis points June 4 on speculation of increased support from global central banks to boost growth.

“It was taken as a positive that the Chinese are going to attempt to stimulate their economy,” said Robert Grimm, a trader at broker-dealer Odeon Capital Group LLC in Greenwich, Connecticut. “It was kind of a surprise move because they haven’t done it in four years.”

The Federal Reserve will need to assess conditions before deciding if more measures are needed to support economic growth, the bank’s Chairman Ben S. Bernanke said in testimony to Congress’s Joint Economic Committee in Washington.

Monetary Tightening

Recent comments from Fed governors indicate the bank may push back its guidance on the timing for future monetary tightening, according to a report today by JPMorgan Chase & Co. analysts led by Eric Beinstein.

The cost to protect against losses on the debt of Capital One fell by the most since Jan. 19. Credit-default swaps on the bank declined by 6.4 basis points to a mid-price of 94.2 basis points at 5:06 p.m. in New York, Bloomberg prices show.

The swaps gauge typically falls as investor confidence improves and rises as it deteriorates. 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: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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