Credit-Default Swaps Index Soars
The cost of protecting U.S. investment-grade corporate bonds from default increased to the highest level since January as escalating violence in Libya overshadowed rising consumer confidence 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, rose 3.4 basis points to a mid- price of 83.1 basis points as of 5:08 p.m. in New York, according to index administrator Markit Group Ltd. Contracts on Atlanta-based Delta Air Lines Inc. and AMR Corp., the parent company of American Airlines, climbed.
Oil prices surged and the Standard & Poor’s 500 index plunged as Libyan leader Muammar Qaddafi vowed to fight an intensifying rebellion until his “last drop of blood.” The political unrest eclipsed the Conference Board’s sentiment index, which increased to 70.4, the highest level since February 2008, from 64.8 the prior month, according to figures today from the New York-based private research group.
“When there’s something creating political unrest and volatility, it doesn’t help your cost of capital,” said Joel Levington, managing director at Brookfield Investment Management Inc. in New York. “The uncertainty will be reflected in stock prices and eventually in bond spreads.”
The credit default swap index, which typically rises as investor confidence deteriorates and falls as it improves, has increased from a one-year low of 79 on Feb. 8. The gauge last reached this level on Jan. 31 and rose the most since Jan. 6, Markit data show.
Credit-default swaps on Fort Worth, Texas-based AMR rose 36 basis points to 827 basis points, according to data provider CMA. The contracts reached a two-year low of 742 last month.
