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Lowest mark in 8 months for US credit default swaps

2011-01-06

Based on speculation that the US economy can survive the sovereign debt issue in Europe, the cost of US corporate bond protection from default has dropped to an 8 month low mark. There was a 0.9 basis points drop in the index that is used by various investors when hedging against losses faced on corporate debt or for creditworthiness speculation.

Although people are closely monitoring the debt crisis in Europe, it might not be having a similar impact to what it had a couple of months ago. Series 15 which is a current index of investment grade for CD swaps had 47% less trading volume than the average of the previous 28 days. This drop was on the back of the announcement from the Chairman of the Federal Reserve, that it may enhance the government debt purchases, and as reports have shown the global recovery stayed put even as actions were being taken by the EU to protect the banking system of Ireland.

The US GDP is said to have grown by 2.8% in the 3rd quarter according to a recent survey of analysts. The index for CD that declines with an improvement in the confidence of the investors and vice-versa is at its lowest since mid-April. The CD swaps of Sara Lee, which is the manufacturer of Jimmy Dean foods as well as Ball Park hotdogs, have soared to the highest recorded levels. The company recently rejected an offer of takeover from JBS, stating that the offered price was too low.