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U.S. Credit-Default Swaps Decline for Fifth Day on Tax Cuts

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Dec. 7 (Bloomberg) -- The cost of protecting investment-grade bonds from default fell for a fifth day after President Barack Obama agreed to extend tax cuts.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or speculate on creditworthiness, fell 0.4 basis point to a mid-price of 90.3 basis points as of 5:00 p.m. in New York, according to index administrator Markit Group Ltd.

“The market much prefers certainty to uncertainty,” Brian Yelvington, head of fixed-income research at Knight Libertas LLC in Greenwich, Connecticut wrote in an e-mail.

The index, at the lowest since Nov. 19, falls as investor confidence improves and rises as it deteriorates. It earlier reached 87.2 as stocks climbed to the highest level since Sept. 2008.

The credit-swaps gauge rose from the day’s lows after a probe of insider trading reportedly widened, Obama said he’ll push to overhaul the George W. Bush-era tax code in two years, and traders speculated Europe’s financial crisis won’t be solved by Ireland’s parliament passing austerity measures.

The CDX North America High-Yield Index, which is quoted differently from the investment-grade index and climbs as confidence improves, rose to the highest since Nov. 10, adding 0.3 percentage points to 101.5 percent of face value. Earlier in the day it reached 102.13.

U.S. authorities widened their investigation of insider trading on Wall Street, issuing subpoenas to “several large hedge funds,” Reuters reported, citing people familiar with the investigation that it didn’t name.

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.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

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

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