Breaking News Bar
updated: 1/16/2013 8:06 AM

Credit swaps in U.S. Rise as World Bank cuts growth forecasts

Success - Article sent! close
Bloomberg News

A gauge of U.S. corporate credit risk rose after the World Bank reduced its global growth forecast yesterday.

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, increased 0.7 basis point to a mid-price of 89.3 basis points at 8:13 a.m. in New York, according to prices compiled by Bloomberg.

The World Bank cut its 2013 global growth forecast as austerity measures, high unemployment and low business confidence weigh on economies in developed nations. Weakening global economic data may heighten investor concern that the recovery will slow, hindering companies' ability to repay debt.

The Washington-based bank projected the global economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012. It cut the U.S. projection by 0.5 percentage point and predicted a second year of contraction in the euro region.

The credit-swaps index typically rises as investor confidence deteriorates and falls as it improves. 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.

Article Comments ()
Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacks. People who harass others or joke about tragedies will be blocked. If a comment violates these standards or our terms of service, click the X in the upper right corner of the comment box. To find our more, read our FAQ.