Credit Swaps in U.S. Rise by Most This Year on Global Concerns

March 22 (Bloomberg) -- A benchmark gauge of U.S. company credit risk rose by the most since December on declining confidence in the global economy as reports showed manufacturing contracted in Europe and China.

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 3.7 basis points to a mid-price of 90.5 basis points at 4:50 p.m. in New York, according to Markit Group Ltd.

A preliminary measure of Chinese manufacturing dropped to 48.1 in March, the lowest level in four months, based on figures from HSBC Holdings Plc and Markit Economics. China had earlier this month cut its economic growth target to 7.5 percent from an 8 percent goal in place since 2005. Euro-area services and manufacturing output also contracted more than forecast even as jobless claims fell in the U.S. last week.

“The world is still a place that has a lot of land mines in it,” Marc Gross, a money manager at RS Investments in New York said in a telephone interview. “While things in the U.S. are on solid ground, you have to be wary of things outside your market.”

Applications for unemployment benefits decreased by 5,000 to 348,000 in the week ended March 17, the fewest since February 2008, Labor Department figures showed today in Washington.

‘Exogenous Factors’

A European composite index, based on a survey of purchasing managers in services and manufacturing, declined to 48.7 in March from 49.3 in February, London-based Markit Economics said in an initial estimate. Economists forecast a gain to 49.6, according to the median of 21 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.

“There is potential for these exogenous factors to overpower the positives on the U.S. front,” Gross said.

Markit rolled out a new version, Series 18, of the credit-default swaps index this week after Series 17 of the gauge reached a more than one-year low of 84.7 basis points on March 19. The CDX indexes roll in March and September.

The swaps index, which typically rises as investor confidence deteriorates and falls as it improves, rose by 6 basis points on Dec. 8. 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.

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