U.S. Company Credit Swaps Rise as Jobless Claims Exceed Forecast

A gauge of corporate credit risk rose to the highest in two weeks after data showed more Americans than forecast filed applications for unemployment benefits, signaling progress in the labor market is faltering.

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, added 2 basis points to a mid-price of 102.9 basis points, the highest since Aug. 15, according to prices compiled by Bloomberg.

The swaps index, on track for its third straight monthly decline, climbed after the Labor Department reported today in Washington that jobless claims were little changed at 374,000 in the week ended Aug. 25, higher than the median estimate of 370,000 in a Bloomberg survey. The report stoked concern the recovery is slowing as investors await a speech tomorrow by Federal Reserve Chairman Ben S. Bernanke and progress from European leaders seeking to stem the region’s debt crisis.

“The fixed-income markets to a degree are on hold until Bernanke speaks tomorrow,” Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management, which oversees $80 billion, said in a telephone interview from Kansas City. “Despite a lot of rhetoric,” from the European Central Bank, he said, “we’re still not seeing any concrete steps.”

Monthly Decline

The swaps measure, which typically rises as investor confidence deteriorates and falls as it improves, reached a 15- week low of 98.5 basis points on Aug. 20, and has dropped 4.6 basis points in August. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

The U.S. two-year interest-rate swap spread, a measure of debt market stress, narrowed 0.04 basis point to 17.25 basis points. The measure, which falls when investors favor assets such as corporate bonds and rises when they seek the perceived safety of government securities, is down from 54.7 in November, the widest since May 2009.

The number of so-called weakest links in the debt markets, those issuers rated B- and lower with negative outlooks, held at 128 through Aug. 22 with total rated debt of $237 billion, Standard & Poor’s global fixed-income research group said in a note today. The U.S. had 78 weakest links, the most of any area, the New York-based group, led by Diane Vazza, said in the note.

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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