New York: The cost to protect against defaults on US corporate bonds rose last week by the most since June as President Barack Obama proposed reigning in banks and Chinese regulators said credit growth would be restricted this year.
Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, climbed 12.7 basis points to 96.2 basis points, according to CMA DataVision prices. An increase in the index signals a decline in investor confidence.
‘Wobbling'
The index has risen eight straight days, the longest stretch since June 2008, on signs of fresh risks to global economic growth. Chinese regulators told some banks on January 20 to trim lending, and the next day Obama proposed limiting the size and trading activities of US financial companies as a way to reduce risk-taking. Moody's recently said the Greek economy faces a "slow death" from deteriorating finances.
"Markets have been wobbling from one bad headline to the next," Citigroup Inc analysts led by Mikhail Foux wrote on Friday in a research report.
"We view current market weakness as temporary and expect the bull trend in credit to resume in due time."
Credit-default swaps on Greek government debt surged to a record 356 basis points last week before falling to 340 basis points, CMA prices show. China reported fourth-quarter growth that exceeded 10 per cent, fuelling speculation the central bank will have to raise interest rates, which could damp expansion in a country that has helped power the global economic recovery.
The Obama administration's call for regulation added to uncertainty in US markets because of a lack of "specifics," said Brian Yelvington, head of fixed-income strategy at Knight Libertas LLC, a broker-dealer in Greenwich, Connecticut.
Obama's proposal would restrict banks from running proprietary trading operations or investing in hedge and private-equity funds.
