U.S. Company Credit-Default Swaps Decline Before Bernanke Speech

A benchmark gauge of U.S. company credit risk fell the most in two weeks before a speech by Federal Reserve Chairman Ben S. Bernanke which may signal the central bank’s willingness to do more quantitative easing.

The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, dropped 1.4 basis points to a mid-price of 101.5 basis points at 8:07 a.m. in New York, according to prices compiled by Bloomberg. That’s the biggest decline since a 1.5 basis-point decrease on Aug. 17.

Bernanke is scheduled to speak at a meeting of central bankers today in Jackson Hole, Wyoming, where his address in 2010 preceded a second round of quantitative easing. Any move by the U.S. central bank to purchase more bonds would reduce concern that companies may struggle to make debt repayments amid a slowing economy.

The swaps measure, which typically falls as investor confidence improves and rises as it deteriorates, reached a 15- week low of 98.5 basis points on Aug. 20, and has dropped 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. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: John Parry in New York at jparry5@bloomberg.net

To contact the editor responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net

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