The cost to protect U.S. corporate bonds from default fell this week amid speculation European Central Bank policy makers are ramping up measures to contain the sovereign debt crisis.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, declined 0.9 basis points today to a mid-price of 91.5 basis points as of 4:47 p.m. in New York, according to index administrator Markit Group Ltd.
The gauge dropped for the third straight day, ending this week down 4 basis points, after the ECB bought government bonds in an effort to calm roiled markets. Central bank President Jean-Claude Trichet said yesterday its monetary policy remains “accommodative” and told investors that policy makers will delay the withdrawing emergency liquidity.
“Trichet said just enough to reassure markets,” said John Stopford, the London-based head of fixed income at Investec Asset Management, who helps oversee $65 billion for clients. “So far it has definitely calmed things down.”
The ECB purchased Irish government bonds today, according to three traders with knowledge of the transactions. The bank also bought Portuguese debt, said two of the people, who asked not to be identified because the deals are confidential. An ECB spokesman in Frankfurt declined to comment.
The credit-default swap index, which typically falls as investor confidence improves and rises as it deteriorates, dropped 7 basis points in the first two days of the month after Trichet told lawmakers he didn’t believe financial stability in the euro zone “could really be called into question.”
Credit swaps 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.
“Corporate credit markets recovered nicely on the hopes that ECB involvement would help,” said George Bory, a Stamford, Connecticut-based strategist at UBS AG.