Corporate Credit Swaps in U.S. Decline as Budget Deadline Looms

A gauge of U.S. corporate credit risk fell as the deadline for an agreement to avert the so- called fiscal cliff approached.

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 1.8 basis points to a mid-price of 97.7 basis points at 8:14 a.m. in New York, according to prices compiled by Bloomberg.

The Senate will reconvene at 11 a.m. in Washington after budget talks stalled over the weekend. “There’s still significant differences between the two sides but negotiations continue,” Senate Majority Leader Harry Reid said yesterday. A failure to avoid the more than $600 billion in tax increases and spending cuts set to take effect next year would cause a recession in the first half of 2013, according to the Congressional Budget Office.

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.

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