Corporate Credit Swaps in U.S. Fall on Signs of Budget Progress

A gauge of U.S. corporate credit risk fell for the second day on signs that progress was being made in talks to avert the so-called fiscal cliff.

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, dropped 0.9 basis point to 91 basis points at 8:03 a.m. in New York. That’s the lowest intraday level since it reached 90.9 on Oct. 19.

A resolution to the budget negotiations may allay investor concern that that the more than $600 billion in spending cuts and tax increases that will take effect next month without action by Congress will cause an economic contraction. President Barack Obama lowered his tax revenue demand by $200 billion and offered to start tax rate increases at $400,000 in income instead of $250,000, moving closer to a budget deal.

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.

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