Corporate Credit Swaps in U.S. Hold at Lowest in Three Months

A gauge of U.S. corporate credit risk held at about the lowest level in three months as German business confidence increased for a second month in December.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, dropped 0.3 basis point to 88.8 basis points at 8:09 a.m. in New York, according to prices compiled by Bloomberg. The measure reached 87.7 basis points yesterday, the lowest intraday level since the latest version of the index started trading on Sept. 20.

Strength in Europe’s largest economy may support a euro-area recovery next year, allaying concern that global financial improvement is faltering. Germany’s Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 102.4 from 101.4 in November. That’s the second straight increase after sentiment dropped to a 2 1/2-year low in October. Economists predicted a reading of 102, according to the median of 43 forecasts in a Bloomberg News survey.

The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. 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.

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