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U.S. Credit Swaps Rise as EU Chiefs Defer Ratifying Greek Plan

Feb. 9 (Bloomberg) -- A benchmark gauge of U.S. company credit risk rose as European finance chiefs are set to defer ratifying a rescue package for Greece, pressing the government in Athens to put a newly struck austerity plan into action.

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, increased 2.4 basis points to a mid-price of 97 basis points at 5:54 p.m. in New York, according to Markit Group Ltd. The index, which typically climbs as investor confidence deteriorates and falls as it improves, ended last week at 94.3, the lowest level since July.

“It’s up to the Greek government by concrete actions -- through legislation, other actions -- to convince its European partners that the second program can be made to work,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said today as he arrived for an emergency meeting of euro-area finance ministers in Brussels. If ratified, the 130 billion-euro ($173 billion) rescue plan may alleviate concern that euro area bank strains would infect financial institutions’ balance sheets worldwide.

The Markit CDX North America High Yield Index, which declines as investor confidence deteriorates, fell 0.63 percentage point to 97.38 percent of face value.

The high-yield bond market “has been operating under the assumption that something would have to happen sooner or later, and it’s pretty fairly baked into today’s levels,” Melissa Weiler, managing director at Crescent Capital Group LP, an alternative-credit asset manager that oversees about $9 billion, said in a telephone interview from Los Angeles. The credit market is “marching to its own beat.”

“Given how the credit markets are performing right now, it’s going to be an exogenous event that actually causes the markets to retrace from some of this liquidity-driven euphoria that we’ve enjoyed for the last two months or so,” Weiler said

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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