A benchmark gauge of U.S. company credit risk climbed from about the lowest level in three weeks as Italian bonds fell on concern that the European debt crisis may spread.
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, climbed 1.4 basis points to a mid-price of 122 basis points at 4:43 p.m. in New York, according to Markit Group Ltd. Earlier, the index fell as low as 120.1, the least since Dec. 8.
The swaps gauge increased as Italian bonds erased gains and a surge in the European Central Bank’s balance sheet to a record underscored the risk that the region’s fiscal turmoil could spread globally. Benchmark Italian 10-year bonds fell, pushing yields two basis points higher to 7.01 percent ahead of a planned sale of as much as 8.5 billion euros of longer-maturity debt tomorrow.
“Italy or Europe in general seems to be driving a lot,” Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP in Los Angeles, which oversees $21 billion, said in a telephone interview. “This time of year it takes very little in activity to move the needle,” she said.
The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, has climbed from 119.6 on Dec. 7 as investors wager that European leaders may fail to prevent the region’s crisis from infecting bank balance sheets globally.
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.
The U.S. two-year interest-rate swap spread, a measure of stress in credit markets, widened 1.4 basis points to 50.75 basis points, up from this year’s low of 13.1 on April 28.