Global Corporate-Debt Risk Eases as China Cuts Interest Rates

Corporate credit risk declined around the world, reversing much of Monday’s surge, after China lowered interest rates in a bid to revive economic growth.

The cost of insuring U.S. investment-grade companies’ debt against non-payment declined for the first time in six days, based on credit-default swaps. That’s down from the highest since 2013 on Monday. In Europe, costs fell the most in more than a month, following the biggest jump since June 29 a day earlier.

The swings in credit-swap prices mirror volatility in stock markets this week caused by concern that China’s economy is slowing. Pessimism eased on Tuesday after the People’s Bank of China cut the one-year lending rate by 25 basis points to 4.6 percent and lowered banks’ reserve ratios to spur loans and investment.

“Credit markets have recovered quite a bit,” said Juan Esteban Valencia, a credit strategist at Societe Generale SA in Paris. “Whether this means the China situation is fully resolved is a different matter, but for today the market is feeling better.”

The Markit CDX North America Investment Grade Index fell two basis point to 84 basis points. The Markit iTraxx Europe Index declined three basis points to 74 basis points.

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