Company Credit Swaps in U.S. Fall as Jobs Growth Tops Estimate

A gauge of U.S. corporate credit risk fell after reports showed signs of improvement in the job market.

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, decreased 0.7 basis point to a mid-price of 85.4 basis points at 2:22 p.m. in New York, according to prices compiled by Bloomberg. The measure, which earlier climbed as much as 1.7 to 87.7, has declined from 97.6 on June 24, the highest closing level in six months.

Companies boosted U.S. employment and jobless claims fell, statistics showed today, before the Labor Department’s monthly nonfarm payroll report scheduled for release on July 5. Indications the economy may be strengthening offset investors’ concern that strains in Europe’s debt markets might spread as Portugal’s borrowing costs surged, according to Jon Duensing, head of corporate credit at Smith Breeden Associates.

“Given the ADP has been tracking a little closer to the nonfarm data, and the fact that ADP came out a little strong, that provided some stabilization to the markets,” Duensing said in a telephone interview from Boulder, Colorado.

Corporations in the U.S. added 188,000 jobs in June, according to data from Roseland, New Jersey-based ADP Research Institute, compared with a forecast of 160,000 jobs in a Bloomberg News survey of economists.

Jobless Claims

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.

Fewer Americans filed for unemployment benefits. Initial jobless claims fell by 5,000 in the week ended June 29 from a revised 348,000 in the prior period, the Labor Department said today in Washington.

The unemployment rate may fall to 7.5 percent in June, from 7.6 percent in May, and nonfarm payrolls may increase by 165,000, according to a Bloomberg survey of economists before the Labor Department’s July 5 report.

The Securities Industry and Financial Markets Association recommended an early close at 2 p.m. New York time for bond markets in the U.S. before the observance tomorrow of the July 4 public holiday.

The risk premium on the Markit CDX North American High Yield Index rose 1.3 basis points to 427.4 basis points, according to prices compiled by Bloomberg.

The average relative yield on speculative-grade, or junk-rated, debt fell 15.1 basis points to 563.5 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.

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