Credit Swaps in U.S. Fall as Budget Talks Said to Make Progress

A gauge of U.S. corporate credit risk fell as Senate Majority Leader Harry Reid said talks were progressing for a deal to avoid 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 3.8 basis points to a mid-price of 95.6 basis points at 10:11 a.m. in New York, according to prices compiled by Bloomberg.

Negotiators made progress overnight as they tried to reach a last-minute budget deal that would let income taxes go up on some top earners. Republicans and Democrats were narrowing the threshold for tax increases to between $400,000 and $500,000 in annual income.

The Senate will reconvene at 11 a.m. in Washington after budget talks stalled over the weekend to resume talks on a deal to avoid the more than $600 billion in tax increases and spending cuts set to take effect after today that the Congressional Budget Office said would probably cause a recession in the first half of 2013.

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