Corporate Credit Swaps in U.S. Rise as Greece Struggles for Aid

A gauge of corporate credit risk rose the most in more than a month as Greece struggled to qualify for aid payments.

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, increased 2.4 basis points to a mid-price of 95.4 basis points as of 4:57 p.m. in New York the most since Aug. 2, according to prices compiled by Bloomberg. Contracts tied to Transocean Ltd. (RIG) rose the most since June.

Greek Prime Minister Antonis Samaras failed to secure an agreement from his coalition partners on 11.5 billion euros ($14.7 billion) of spending cuts required by lenders to qualify for aid, stoking concern that a global slowdown will taint corporate balance sheets. Italy’s economy shrank in the second quarter more than previously reported, China’s industrial output grew in August at the slowest rate since 2009 and Japan’s economy expanded at half the pace initially estimated.

The credit swaps index, which typically rises as investor confidence deteriorates and falls as it improves, climbed from 93 basis points on Sept. 7, the lowest since April 4. 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.

Swap Spread

The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, narrowed 0.2 basis point to 14.8 basis points as of 5:19 p.m. in New York. 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 highest since May 2009.

Swaps tied to Transocean increased 3.6 basis points to 170.4 at 5:27 p.m. in New York, the most since June 1, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The world’s largest offshore driller sold $1.5 billion of debt today to fund the construction of four vessels capable of deep-water drilling. The company agreed to sell most of its shallow-water fleet.

To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net; Matt Robinson in New York at Mrobinson55@bloomberg.net

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