Feb. 8 (Bloomberg) -- A credit-default swaps benchmark in the U.S. held as the trade deficit narrowed more than forecast in December.
The Markit CDX North American Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, declined 0.4 basis point to a mid-price of 89.5 basis points at 4:14 p.m. in New York, according to prices compiled by Bloomberg.
The deficit shrank 20.7 percent to $38.5 billion, lower than any estimate in a Bloomberg survey of 73 economists and the least since January 2010, Commerce Department figures showed today in Washington.
“Credit-derivative investors are really bearish, and the trade deficit data has hurt this bearish sentiment,” Brian Reynolds, the New York-based chief market strategist for brokerage firm Rosenblatt Securities Inc., said in a telephone interview.
The gauge 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 cost to protect McGraw-Hill Cos. debt from losses increased after Fitch Ratings reduced the company’s default rating, citing the lawsuit filed by the Department of Justice against the company and its Standard & Poor’s rating unit.
Five-year credit swaps on the company’s debt increased 27 basis points to 222.5 basis points as of 3:01 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill and compiles prices quoted by dealers in the privately negotiated market.
The risk premium on the Markit CDX North American High Yield Index dropped 0.3 basis points to 449 basis points, Bloomberg prices show.
Defaults of speculative-grade bonds in the U.S. fell to 3 percent in January, compared with 3.3 percent the previous month, according to a report yesterday from Moody’s Investors Service. The ratings company forecasts the rate will be 2.7 percent in the U.S. by the end of the year.
“The pace of corporate defaults continued to match our expectations,” Albert Metz, managing director of Credit Policy Research at Moody’s, wrote in the report. “Ample liquidity will continue to ease default pressures over the near term.”
The average relative yield on speculative-grade or junk-rated debt rose 3.2 basis points to 499 basis points, according to Bloomberg data.
High-yield, high-risk debt is rated below Baa3 by Moody’s and lower than BBB- at S&P. A basis point is 0.01 percentage point.
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