Default Swaps in U.S. Little Changed as Housing Starts Increase

A gauge of corporate credit risk was little changed as new housing construction in the U.S. rose in August.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on company debt or to speculate on creditworthiness, declined 0.3 basis point to a mid-price of 85.1 basis points at 8:45 a.m. in New York, according to prices compiled by Bloomberg.

The measure fell as the Commerce Department reported that builders began construction on new homes at a 750,000 annual rate, up from a revised 733,000 rate in July and less than the median estimate of 85 economists surveyed by Bloomberg. The Bank of Japan (8301) unexpectedly boosted its asset-purchase program, following measures announced by the Federal Reserve and European Central bank to spur growth.

The swaps index, which typically falls as investor confidence improves and rises as it deteriorates, reached an 18- month low of 83 basis points last week following the Federal Reserve’s announcement of a third round of bond buying. 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: Peter Rawlings in New York at prawlings@bloomberg.net

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

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