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U.S. Credit Swaps Fall Most in Six Weeks; Santander Sells Bonds

Aug. 22 (Bloomberg) -- The cost to protect against losses on corporate bonds declined by the most in six weeks as jobless claims in the U.S. dropped to a five-year low. Banco Santander SA sold $500 million of five-year notes.

The Markit CDX North American Investment Grade Index of credit-default swaps, which investors use to hedge against losses or to speculate on creditworthiness, decreased 3.7 basis points to a mid-price of 80.7 basis points as of 5:20 p.m. in New York, according to prices compiled by Bloomberg. That’s the biggest one-day drop since July 11.

A strengthening economy will bolster U.S. companies’ ability to cover interest expenses and repay debt. The number of unemployment claims in the month ended Aug. 17 fell to 330,500 a week on average, the least since November 2007, Labor Department figures showed today in Washington, as Germany led growth in manufacturing and services in the euro area.

The jobs report was “an unexciting weekly report but one that keeps the labor market in the right zone to feel the glow of ongoing job creation,” Andrew Wilkinson, the chief economic strategist at Miller Tabak & Co. in New York, said in an e-mail.

The index, which typically falls as investor confidence improves and rises as it deteriorates, increased 6.1 basis points last week, the largest advance since the period ended June 21.

Santander Bonds

Credit swaps 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.

A unit of Banco Santander sold 3.45 percent notes due August 2018 at 180 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg.

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, declined 15.5 basis points to 398.5, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries narrowed 0.3 basis point to 130.3 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt decreased 3 to 567.3.

Credit-rating cuts for Lone Pine Resources Canada Ltd. and Spain-based Codere SA increased the global corporate default tally to 55 issuers this year, according to a report from Standard & Poor’s Global Fixed Income Research today.

To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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