U.S. Corporate Credit Swaps Decline for First Time in Two Days

A gauge of U.S. corporate credit risk declined for the first time this week as investors weighed whether the economy is expanding enough to prompt the Federal Reserve to reduce debt purchases.

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, decreased 2 basis points to a mid-price of 83.6 basis points at 8:19 a.m. in New York, according to prices compiled by Bloomberg. The measure has dropped from a two-month high of 86 basis points on June 5.

Fed members are debating how and when to curtail the U.S. central bank’s $85 billion monthly bond-buying program, designed to curb borrowing costs and spur growth in the world’s biggest economy. The purchases have pushed investors into riskier assets such as corporate debt in search of higher yields.

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: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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