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futuresfacts.com | market headlines from the web

Credit Swaps Approach Seven-Year Low After Fed Decision

A measure of U.S. corporate credit risk was poised to reach the lowest level in seven years today after the Federal Reserve said interest rates will remain near zero for a "considerable time."

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, dropped 3.2 basis points to 56.8 basis points at 5:01 p.m. in New York, according to prices compiled by Bloomberg. That would be the lowest closing level since October 2007.

The policy-making Federal Open Market Committee said in a statement today that it's likely to "reduce the pace of asset purchases in further measured steps" and that it expects rates to stay low for a "considerable time" after its bond-buying ends.

The swaps gauge typically falls as investor confidence improves and rises as it deteriorates. 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.

The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, fell 10.5 basis points to 299 basis points, Bloomberg prices show. High-yield, high-risk bonds are rated below Baa3 by Moody's Investors Service and less than BBB- at Standard & Poor's.

To contact the reporters on this story: Caroline Chen in New York at This email address is being protected from spambots. You need JavaScript enabled to view it. ; Adam Janofsky in New York at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editors responsible for this story: Shannon D. Harrington at This email address is being protected from spambots. You need JavaScript enabled to view it. John Parry, Mitchell Martin

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Contributing Editors

  • adrian muller has conducted seminars for the chicago board of trade, including a key series in 1999 which cautioned about a top in the equity markets (see his article “top experts and statistics on the dow”). adrian muller has appeared on cable tv financial programs with analysis on the futures markets and equity market directional forecasts. he has been quoted in barron's, the wall street journal, and futures magazine.


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