U.S. Company Credit Swaps Fall as Obama Hopeful on Budget Deal

A gauge of U.S. corporate credit risk fell the most in more than a month as President Barack Obama said an agreement to avert the so-called fiscal cliff appeared to be “within sight.”

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 5 basis points to a mid-price of 94.4 basis points at 2:01 p.m. in New York, according to prices compiled by Bloomberg. That’s the steepest decline since Nov. 19.

Obama said at an event at the White House he was “hopeful” Congress will reach a smaller deal that prevents tax increases for all wage earners. The president said the main sticking point was how to avoid the automatic federal spending cuts set to begin tomorrow.

Under a proposed deal, income tax cuts would be extended for annual income up to $450,000, said an official who spoke on condition of anonymity, with rates rising to 39.6 percent on income above that. Expanded unemployment insurance would be continued through 2013.

Lawmakers face a looming deadline to reach a deal that would 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.

The Securities Industry and Financial Markets Association recommended trading in dollar-denominated fixed-income securities end at 2 p.m. New York time today and a full-market close tomorrow, according to its website.

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

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