U.S. Corporate Credit Swaps Drop; AIG Plane Unit’s Swaps Decline

A gauge of U.S. corporate credit risk declined, recording its third weekly drop as payrolls rose more than anticipated in November and the jobless rate fell to an almost four-year low.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, decreased 0.7 basis point to a mid-price of 96.8 basis points at 4:47 p.m. in New York, according to prices compiled by Bloomberg. The measure, which was poised for the lowest closing level since Nov. 6, fell about 1.8 basis points this week.

Employment climbed by 146,000 following a revised 138,000 gain in October, Labor Department figures showed today in Washington. The median estimate of 91 economists surveyed by Bloomberg called for a gain of 85,000. The unemployment rate fell to 7.7 percent, the lowest since December 2008. Signs the recovery is gaining strength may ease investor concern that an economic slowdown will hinder companies’ ability to repay debt.

“The employment numbers were quite good, better than anticipated,” Michael Kraft, senior portfolio manager at Vanderbilt Avenue Asset Management LLC, said in a telephone interview from New York. “And there’s modest optimism that there’s going to be a deal on the fiscal cliff. The combination of those two things has given a little bit of support to credit across the board.”

The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.

ILFC Swaps

Credit swaps protecting against losses on the debt of International Lease Finance Corp., American International Group Inc. (AIG)’s aircraft-leasing unit, fell 130.6 basis points to 259.2 basis points as of 3:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

AIG, the insurer that counts the U.S. as its largest shareholder, said it is in talks to sell 90 percent of ILFC to an investor group including New China Trust Co.

The average relative yield on junk-rated debt narrowed 5 basis points to 5.6 percentage points, led by spreads on the senior debt of financial companies, which dropped 10 basis points to 3.7 percentage points, Bloomberg data show. High- yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s. A basis point is 0.01 percentage point.

The risk premium on the Markit CDX North American High Yield Index fell 3.1 basis points to 486.5 basis points, according to Bloomberg prices.

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

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