U.S. Corporate Credit Swaps Fall as Lawmakers Plan Obama Meeting

A gauge of U.S. corporate credit risk fell for the first time in four sessions on optimism that a budget deal may be reached as Congress leaders plan to meet with President Barack Obama tomorrow.

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 a mid-price of 94.8 basis points as of 4:58 p.m. in New York, according to prices compiled by Bloomberg.

The index earlier in the day climbed as high as 97.5 basis points as Senate Majority Leader Harry Reid said a resolution before Jan. 1 to the so-called fiscal cliff appears unlikely.

Democratic and Republican leaders of the U.S. House and Senate plan to meet with President Obama tomorrow as a year-end budget deadline approaches, Senator Dick Durbin said today. The U.S. House will convene the evening of Dec. 30 as lawmakers seek to resolve a budget impasse, Majority Leader Eric Cantor said today in a message posted on Twitter.

“The question is whether this is political posturing or whether they’re actually going to get something done” at the evening session, Marc Pinto, head of corporate bond strategy at Susquehanna International Group LLP, said in a telephone interview from New York. “This is just one more part of what has been a dramatic roller coaster ride,” he said.

“Volatility will remain a mainstay until Congress ’Comes Together’,” Pinto added by e-mail.

Junk Debt

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.

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 communications companies, which gained 5 basis points to 5.09 percentage points, 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 3.1 basis points to 487.7 basis points, according to prices compiled by Bloomberg.

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