A benchmark gauge of U.S. company credit risk fell the most in two weeks after Federal Reserve Chairman Ben S. Bernanke made the case for further monetary easing.
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, eased 1.4 basis points to a mid-price of 101.5 basis points at 4:06 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest decline since a 1.5 basis-point decrease on Aug. 17.
The swaps measure decreased after Bernanke emphasized that a new round of bond purchases is an option in a speech to central bankers and economists at an annual forum in Jackson Hole, Wyoming. Investors speculated steps to boost the economy may come as soon as next month. Any move by the U.S. central bank to purchase more bonds would curb concern that companies will struggle to make debt repayments amid a slowing economy.
The “Fed is essentially saying they are going to continue monetary easing for years, and in particular any time there is a slowdown in the economy,” according to Jon Ruff, a portfolio manager and director of research in San Francisco for a unit of AllianceBernstein LP. “The market’s response to the Fed announcement only proves the theory,” as the U.S. dollar fell and commodities and stocks rallied, he said.
The swaps index, which typically falls as investor confidence improves and rises as it deteriorates, reached a 15-week low of 98.5 basis points on Aug. 20.
The contracts 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.