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Credit Swaps in U.S. Increase Ahead of European Finance Meeting

A benchmark gauge of U.S. corporate debt risk rose as euro-area finance ministers meet to finalize details of the rescue plan for banks agreed upon last month by the leaders of the currency bloc.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 0.9 basis point to a mid-price of 113.6 basis points at 8:20 a.m. in New York, according to prices compiled by Bloomberg.

The measure increased for the third consecutive day as investor concern grows that Europe’s financial and economic crisis will leak onto U.S. balance sheets and crimp profits, undermining borrowers’ ability to repay debt. Euro-area leaders decided June 29 to relax the means of recapitalizing banks by easing direct access to bailout funds, a week before the European Central Bank cut its main refinancing rate to a record low 0.75 percent.

The swaps gauge typically climbs as investor confidence deteriorates and falls as it improves. 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: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Richard Bravo at rbravo5@bloomberg.net

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