Corporate Credit Swaps in U.S. Decrease for First Time This Week

The cost to protect against losses on corporate bonds fell for the first time this week, a day after the measure jumped the most in two months.

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 0.6 basis point to a mid-price of 83.5 basis points as of 4:29 p.m. in New York, according to prices compiled by Bloomberg.

The index gained 4.5 basis points yesterday, the most since June 20, as the U.S. and its allies began moving closer to a military strike against Syria in response to an alleged chemical weapons attack near Damascus last week. The swaps measure typically increases as investor confidence deteriorates.

“Mounting tension amongst investors over Syria appeared to come to a pause midweek as demand for safe-haven assets came skidding to a halt,” Andrew Wilkinson, the chief economic strategist at Miller Tabak & Co. in New York, said in an e-mail.

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.

Ten-year Treasuries fell after rising for four days, pushing the yield 5.8 basis points higher to 2.77 percent, Bloomberg prices show.

Risk Premium

The risk premium on the Markit CDX North American High Yield Index, a credit-swaps benchmark tied to speculative-grade bonds, fell 3.8 basis points to 405.1, Bloomberg prices show.

The average extra yield investors demand to hold dollar-denominated, investment-grade corporate bonds rather than similar-maturity Treasuries narrowed 0.7 basis point to 131.5 basis points, Bloomberg data show. The measure for speculative-grade, or junk-rated, debt fell 2.5 to 589.2.

Investment-grade debt is rated Baa3 or higher at Moody’s Investors Service and at least BBB- at Standard & Poor’s.

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