U.S. Company credit-default swaps climb as homebuilding slows

A gauge of U.S. corporate credit risk rose after France and Germany’s leaders said they would back a financial transaction tax and as fewer homebuilding projects got started in the U.S.

The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, climbed 3.5 basis points to a mid-price of 112.9 basis points as of 1:34 p.m. in New York. Perceived credit risk worsened for real estate companies Hovnanian Enterprises Inc. and Simon Property Group Inc.

The cost to protect corporate debt from losses climbed after French President Nicolas Sarkozy and German Chancellor Angela Merkel said they would support a financial transaction tax for the region. Earlier traders pushed the index higher as European and U.S. economic data worsened the outlook for global growth in the second half of the year.

“The economy is going to be the focus going forward and the data that’s coming out is mixed at best and in some areas it’s very weak,” said Rich Gordon, a fixed-income market strategist at Wells Fargo & Co. “There’s just no upward push from housing in this economic cycle,” he said.

U.S. housing starts in July fell 1.5 percent to a 604,000 annual rate, Commerce Department figures showed. Second-quarter gross domestic product in the 17-nation euro area rose by less than economists estimated, the European Union said.

The gauge, which typically rises as investor confidence deteriorates and falls as it improves, climbed 12.3 basis points last week on concern that Europe’s debt crisis was deepening and the U.S. economic recovery was faltering. The index trimmed gains the past two trading days, dropping 5.8 basis points yesterday in the biggest decline since November.

Hovnanian CDS

Credit-default swaps on Hovnanian rose 349.8 basis points to 4933.6 basis points, according to data provider CMA. The cost to protect the debt of the Red Bank, New Jersey-based homebuilder climbed after builders began work on fewer homes in July.

Contracts on Indianapolis-based real estate investor Simon Property Group increased 7.8 basis points to 113.1 basis points, CMA data show. CMA is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

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.