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U.S. Corporate Credit Swaps Index Rises First Time in Four Weeks

A gauge of U.S. corporate credit risk rose for the first week in four on signs the Federal Reserve is unlikely to slow the pace of stimulus cuts.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, added 1.3 basis points for the week to 65.1 basis points as of 5:20 p.m. in New York, according to prices compiled by Bloomberg. The measure rose 0.4 basis point today.

Even as investors assess Fed officials signals of further reductions in monthly bond purchases and U.S. economic reports showed some weather-related weakness, the swaps gauge has declined from 71.4 basis points on Jan. 31.

“The tightening of spreads this month suggest the market is looking past these issues and thinking of them as transitory events to where things will eventually work out,” Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, said in a telephone interview.

Dallas Fed President Richard Fisher said it’s hard to argue that further expansion of the central bank’s balance sheet has had “much efficacy.” St. Louis Fed President James Bullard said the central bank is on target to continue scaling back stimulus.

Turmoil in emerging markets eased, as a peace agreement was signed in Ukraine following the violent protests that killed at least 77 protesters and police this week.

Ukraine CDS

The swaps gauge 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 bonds.

The cost to protect the debt of Ukraine for five years declined as much as 179 basis points to 1,098 basis points, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market. That’s the biggest intraday drop since Dec. 17.

Ukrainian opposition leaders joined President Viktor Yanukovych in signing a peace accord to halt a deadly three-month political crisis.

Builders in the U.S. began work on 880,000 homes at an annualized rate last month, following December’s revised 1.05 million, the Commerce Department reported in Washington on Feb. 19. The decrease was the biggest since February 2011.

Liquidity Stress

Moody’s Liquidity-Stress Index for speculative-grade companies increased to 4.5 percent in mid-February, from 4.2 percent at the end of 2013, analysts led by John Puchalla at Moody’s Investors Service wrote in a research note today. The index rises when corporate liquidity appears to weaken and falls when it improves.

“Market movements and a sharp drop in issuance thus far in 2014 have not pressured the liquidity of U.S. speculative-grade companies,” Puchalla wrote.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, widened 6 basis points for the week to 322.9 after increasing by 1.8 today, Bloomberg prices show. Speculative-grade bonds are rated below Baa3 by Moody’s and less than BBB-at Standard & Poor’s. A basis point is 0.01 percentage point.

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