The cost to protect the debt of U.S. companies from losses fell as optimism increased that lawmakers will reach a deal to raise the federal debt limit and jobless claims dropped.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 1.4 basis points to a mid-price of 94.8 basis points as of 12:51 p.m. in New York.
The benchmark swaps index dropped by the most since July 21 as White House spokesman Jay Carney said “chances are great” for a compromise deal to increase the nation’s borrowing limit before a possible government default on Aug. 2. Applications for unemployment benefits fell by 24,000 to 398,000 in the week ended July 23, Labor Department figures showed today in Washington, helping the swaps index pare the 1.8 basis points gain from yesterday.
“Things have been pretty well behaved,” said Noel Hebert, credit strategist at Mitsubishi UFJ Securities USA Inc. in New York. “People seem to just be sitting and waiting to see what we’re going to get,” he said, referring to the possibility of an agreement over the debt ceiling.
The benchmark credit index typically rises as investor confidence deteriorates and falls as it improves. The gauge has risen from 92.4 on July 21 on concern that the nation may lose its highest AAA credit rating.
The “long-term growth rate of the debt” would be the biggest factor in the decision to lower the country’s top-level grade, Standard & Poor’s President Deven Sharma told U.S. lawmakers yesterday. The rating company will wait to see a final proposal before acting, he said.
Credit swaps pay the buyer face value if a borrower fails to meets its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
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