Corporate credit swaps in U.S. Rise after reaching two-year low

A gauge of U.S. corporate credit risk climbed from a two-year low after Fitch Ratings cut Italy’s credit grade and as Chinese industrial output expanded at the slowest pace since 2009.

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 0.8 basis point to a mid-price of 81.4 basis points at 8:13 a.m. in New York, according to prices compiled by Bloomberg. The measure reached 80.6 basis points on March 8, its lowest level since Feb. 21, 2011.

Signs of slower global economic growth may stoke investor concern that companies’ ability to repay debt will be hampered. Fitch lowered Italy’s credit rating one level to BBB+ March 8, citing political paralysis that threatens the country’s ability to respond to a recession and the European debt crisis.

Government data in China showed the country’s industrial output expanded at a slower pace and lending and retail sales growth slowed.

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.

--With assistance from Victoria Stilwell in New York. Editors: Richard Bravo, Shannon D. Harrington

To contact the reporter on this story: Madhura Karnik in New York at mkarnikbloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5bloomberg.net