The cost to protect U.S. bank debt tumbled, led by Morgan Stanley and Bank of America Corp., and a benchmark gauge of company credit risk declined to the lowest in more than a month as Europe’s leaders battled to stem the region’s sovereign fiscal crisis.
Credit-default swaps on U.S. banks eased to the lowest levels in a month. The Markit CDX North America Investment Grade Index of credit-default swaps, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell 4.8 basis points to a mid-price of 120.8 at 11:40 a.m. in New York, the lowest level since Nov. 4, according to Markit Group Ltd.
Traders pushed the index lower for the sixth day as Italy’s 10-year yield dropped by the most in almost four months after Prime Minister Mario Monti announced 30 billion euros ($40 billion) of austerity and growth measures to cut the nation’s debt load. German Chancellor Angela Merkel and French President Nicolas Sarkozy pushed for a rewrite of the European Union’s governing treaties to tighten economic cooperation as a first step to ending the debt crisis.
The index, which typically decreases as investor confidence improves, has declined from 146 basis points on Nov. 25. It fell last week by the most since March 2009 as investors wagered Europe’s policy makers would prevent the region’s fiscal upheaval from infecting bank balance sheets globally.
Contracts tied to the debt of Morgan Stanley declined 32.7 basis points to 382.2 basis points, the least since Nov. 3, and those on Citigroup fell 22.4 to 227.3, the lowest level since Oct. 28, the data show.
Goldman Sachs Group Inc. declined 25.8 to 289.7, the least since Nov. 2, and those on Bank of America’s debt eased 30 to 390, the lowest level since Nov. 15, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
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.