Credit swaps, which are used to gauge U.S. corporate credit risk, fell to their lowest level in almost two weeks as Europe seeks to implement a number of austerity measures aimed at stabilizing the region’s financial system.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to speculate on a firm’s creditworthiness or to hedge against losses, fell 0.6 basis points to reach 85.8 basis points, the lowest level since Feb. 19 when the index reached 85.4 basis points, according to Bloomberg.
As Italy nears its elections after an anti-austerity vote last week, European policymakers have called on member states to move forward on budget cuts aimed at ending the financial crisis. Signs of global economic recovery may put investors at ease over their concerns about whether companies will be able to repay their debt under measures that could hinder their ability to do so.
The credit-swaps index usually declines as investors become more confident and increases as investor confidence deteriorates. One basis point usually equals $1,000 annually on a contract protecting $10 million worth of debt, and contracts pay the buyer face value if a borrower does not meet its debt obligations, minus the value of the defaulted debt, Bloomberg reports.