Credit Swaps in U.S. Climb on Italian Debt Auction, Greece GDP

A benchmark gauge of U.S. corporate credit risk increased, rising from a three-month low as Italy met debt-auction targets and Greece’s economy shrank less than economists had estimated.

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, rose 0.3 basis point to a mid-price of 102.8 basis points as of 5:27 p.m. in New York, according to prices compiled by Bloomberg. The index ended Aug. 10 at 102.4, the lowest level since May 8.

Investors are speculating policy makers will carry out European Central Bank President Mario Draghi’s sovereign bond buying plan, helping to curb soaring borrowing costs and ease concerns about sluggish economic growth. The German government, led by Chancellor Angela Merkel, said last week it supports Draghi’s efforts to preserve the currency bloc.

“It’s been pretty quiet the last couple weeks, part of it is the typical summer slowdown and part of it is waiting on the ECB to act,” Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP, said in a telephone interview. “We’ve been kind of treading water.”

Italy sold 8 billion euros ($9.8 billion) of one-year bills today, matching its target. The yield on Italian 10-year notes was little changed at 5.9 percent at 12 p.m. in New York. Greece’s gross domestic product shrank 6.2 percent in the second quarter, less than the 7 percent contraction forecast in a Bloomberg News survey. The nation’s economy has contracted for nine straight quarters.

Japan’s Growth

Data from Japan’s Cabinet Office in Tokyo earlier today showed the country’s economy grew an annualized 1.4 percent in the three months ended in June as weaker exports and consumer spending curbed expansion. The median estimate of economists surveyed by Bloomberg News called for 2.3 percent growth.

The default premium on the Markit CDX North America High Yield Index, a measure of U.S. speculative-grade corporate debt risk, rose 4.9 basis points to a mid-price of 554.8 basis points, Bloomberg prices show.

In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 0.3 to 149.2.

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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