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Credit-Default Swaps in U.S. Rise as Jobless Claims Increase

A gauge of U.S. corporate credit risk climbed for a second day as the number of Americans applying for unemployment benefits rose last week to a one-month high.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1 basis point to a mid-price of 123.3 basis points at 4:33 p.m. in New York, according to prices compiled by Bloomberg. That’s the highest level since May 18 for the index. Contracts tied to JPMorgan Chase & Co. climbed by the most in three weeks.

The index rose as the Labor Department said jobless claims in the U.S. increased by 10,000 to 383,000 in the week ended May 26. The barometer pared most of its rise after a Greek opinion poll showed the nation’s biggest pro-bailout party was leading going into elections on June 17.

“It’s going to be extraordinarily volatile through the Greek elections,” said Mark Alexandridis, a portfolio manager at First Principles Capital Management, overseeing about $7.9 billion in fixed-income assets. “Not only do you have this unstable situation in Europe but also tepid numbers coming out of the U.S.”

The Labor Department initially reported the prior week’s applications at 370,000. Last week’s claims were the highest since 392,000 in the week ended April 21.

Opinion Poll

In Greece, the latest opinion poll conducted by Marc SA for Athens-based Alpha TV, contradicts a poll for Epikaira Magazine yesterday which showed the anti-bailout party Syriza in the lead.

The cost to protect against losses on the debt of JPMorgan rose by the most since May 11. Credit-default swaps on the New York-based bank increased 12.4 basis points to 156.3 basis points at 4:38 p.m., Bloomberg prices show.

The swaps gauge typically rises as investor confidence deteriorates and falls as it improves. 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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