Thursday, September 20, 2018
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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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