Credit Swaps in U.S. Climb as Jobless Claims Fewest Since 2008

A gauge of U.S. corporate debt risk rose for a second day as a drop in jobless claims failed to ease investor concern that the global economy is slowing.

The Markit CDX North America Investment Grade Index, a credit-default swaps benchmark used to hedge against losses on corporate debt or to speculate on creditworthiness, increased 1.8 basis points to a mid-price of 113.4 basis points at 4:58 p.m. in New York, according to prices compiled by Bloomberg. Contracts tied to Marriott International Inc. rose as the hotel operator reduced forecasts for international revenue growth.

The global corporate default tally increased, according to Standard & Poor’s, as concern mounts that Europe’s financial and economic crisis is undermining borrowers’ ability to repay debt. First-time claims for unemployment insurance payments dropped last week to the lowest level since March 2008, Labor Department figures showed today, as automakers kept more plants open to replenish inventories.

“There’s just a mismatch right now on what the expectation was for the amount of layoffs that were going to occur versus the reality of what did occur,” Jon Duensing, the Boulder, Colorado-based head of corporate credit at Smith Breeden Associates, said in a telephone interview. “Certainly if there wouldn’t have been that qualification in there, a number like that would have been taken more positively.”

Applications for unemployment benefits declined by 26,000 in the week ended July 7 to 350,000. Economists had called for 372,000 claims, according to the median forecast in a Bloomberg News survey. Automakers including Chrysler Group LLC, Ford Motor Co. and Nissan Motor Co. are keeping more plants open than usual in July to fulfill demand as auto sales accelerate.

U.S. auto sales climbed to a seasonally adjusted annualized rate of 14.1 million in June, according to researcher Autodata Corp.

Global Defaults

Bankruptcy filings this month by Dynegy Inc. and Patriot Coal Corp. increased the number of global corporate defaults to 42 in 2012, more than double the number in the same period last year, according to rating company S&P.

Marriot, the largest publicly traded U.S. hotel chain, cut its projections for growth in international revenue per available room to a range of 5 percent to 7 percent this year as demand weakens in the Middle East and Asia, the company said yesterday in a statement. The hotelier had previously forecast growth of 6 percent to 8 percent for all regions before currency adjustments.

The cost to guard against losses on the debt of Marriot increased 4.4 basis points to a mid-price of 120.4 basis points, the highest level since June 12, at 4:56 p.m. in New York, 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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