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U.S. Company Credit Swaps Advance as Budget Negotiations Resume

A gauge of U.S. corporate credit risk rose for a fourth day as consumer confidence declined and lawmakers returned to Washington to resume talks on a budget to avoid the so-called fiscal cliff.

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, climbed 2.2 basis points to a mid-price of 97.3 basis points at 12:07 p.m. in New York, according to prices compiled by Bloomberg. Earlier, the index fell as much as 1.1 basis points.

Lawmakers resume budget talks today to avoid the more than $600 billion in automatic tax increases and spending cuts that may cause an economic slowdown, hindering companies’ ability to repay debt. Senate Majority Leader Harry Reid said a resolution to the budget dispute before Jan. 1 appears unlikely. Treasury Secretary Timothy F. Geithner said yesterday in a letter to congressional leaders he will take “extraordinary measures” to postpone a U.S. default while a deficit-reduction deal is worked out.

“With each passing day the idea that we’ll go over the fiscal cliff becomes more tangible,” Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP, said in a telephone interview from New York. “Clearly Senator Reid’s comments today drove that point home. If the House doesn’t return in 24 hours, we’ll probably see the CDX drift wider into the close of the year.”

Consumer Confidence

Reid criticized the GOP-led House of Representatives for not gathering, saying House Speaker John Boehner should call members back today as time is running out. Boehner spokesman Brendan Buck said in a message posted today on Twitter that the speaker “told the president yesterday that the Senate must now act. The House has already done so to avert the entire fiscal cliff.”

Confidence among U.S. consumers declined in December as the budget debate soured Americans’ outlook for the economy. The Conference Board’s index of sentiment fell to 65.1 from a revised 71.5 reading the prior month, figures from the New York-based private research group showed today. The gauge was projected to fall to 70, according to the Bloomberg survey median.

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

Home Purchases

The stalemate in budget negotiations offset an increase in sales of new houses, which rose to the highest level in more than two years in November. Purchases climbed 4.4 percent to a 377,000 annual pace, the most since April 2010, the Commerce Department said today in Washington.

Applications for jobless benefits fell 12,000 to 350,000 in the week ended Dec. 22, Labor Department figures showed. Economists forecast 360,000, according to the median estimate in a Bloomberg survey.

The average relative yield on junk-rated debt advanced 1 basis point to 5.14 percentage points today, led by spreads on the bonds of consumer discretionary, energy and industrial companies, which gained 2 basis points each, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.

The risk premium on the Markit CDX North American High Yield Index rose 6.5 basis points to 491.1 basis points, the highest intraday level for the index since Dec. 10, according to prices compiled by Bloomberg.

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