U.S. Corporate Credit-Swaps Index Falls as Cyprus Banks Reopen

A gauge of U.S. corporate credit risk fell as Cyprus’s banks reopened for the first time in two weeks and retail sales increased in Germany, easing investor concern that Europe’s debt crisis may worsen.

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, declined the most this week, decreasing 1.9 basis points to a mid-price of 90.6 basis points at 4 p.m. in New York, according to prices compiled by Bloomberg.

Cyprus’s banks opened today with new rules curbing access to cash preventing an initial panic to withdraw deposits. German retail sales, adjusted for inflation and seasonal swings, gained 0.4 percent in February, the Federal Statistics Office in Wiesbaden said after economists forecast a 0.6 percent decline. Signs of an improvement in Europe’s economy may reduce investor concern that companies will struggle to repay debts.

“Good news: banks are open. Bad news: all the restrictions,” Ronald Quigley, head of fixed-income syndicate and primary sales at Mischler Financial Group Inc., said in a telephone interview from Stamford, Connecticut. “How much Cyprus is going to impact the other peripheral sovereigns, we don’t know. Only time will tell.”

GDP Growth

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.

U.S. gross domestic product rose at a 0.4 percent annual rate, up from a 0.1 percent prior estimate and following a 3.1 percent pace in the third quarter, revised Commerce Department figures showed today in Washington. Other reports showed more Americans than forecast filed applications for unemployment benefits last week, and U.S. business activity expanded in March at a slower-than-expected pace.

“You’re going to have some speed bumps, but we’re trudging along generally in the right direction,” Quigley said. “The story going forward is about U.S. corporate earnings and defining monetary policy.”

The risk premium on the Markit CDX North American High Yield Index slid 4 basis points to 430.2 basis points, Bloomberg prices show. Traders moved into a new version of the measure, Series 20, yesterday.

The average relative yield on speculative-grade, or junk-rated, debt added 0.1 basis point to 503 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.

The Securities Industry and Financial Markets Association recommended that trading in U.S. fixed-income securities end at 2 p.m. New York time in advance of the Good Friday holiday and stay closed tomorrow.

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