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

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.