Credit Swaps in U.S. Rise as China Manufacturing Shrinks in May

A gauge of U.S. corporate credit risk rose as data showed China’s manufacturing is contracting in May for the first time in seven months.

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, increased 1.8 basis points to a mid-price of 73.5 basis points at 8:10 a.m. in New York, according to prices compiled by Bloomberg. The measure has increased for three of the last four days.

A preliminary reading of China’s Purchasing Managers’ Index fell to 49.6 in May, HSBC Holdings Plc and Markit Economics said today. A reading above 50 indicates expansion. Signs of faltering world growth may trigger concern that U.S. firms will face difficulty repaying debt maturities.

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