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(Bloomberg) — A key gauge of US credit risk fluctuated between gains and losses on Monday, tightening after Qatar said it intercepted missiles from Iran targeting a US military base, without any casualties.
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The spread on the Markit CDX North American Investment Grade Index, which rises as perceived risk does, tightened 0.62 basis points to 55.4 basis points as of 1:42 p.m. in New York, after climbing as much as 1.61 points to 57.63 earlier in the day.
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A similar index for junk bonds also rose 0.1 points to 106.4 basis points, after dropping as much as 0.37 points to 105.90. This index falls as risk increases.
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Stocks also seesawed and oil prices dropped after Iran’s state news agency said the country had launched missiles at a US air base in Qatar. The risk-off tone prompted some issuers to postpone bond sales in the US investment-grade market Monday morning in New York.
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The market implications of the escalating war remain unclear and the key to whether this becomes a larger risk-off event will be determined by how Iran chooses to respond, JPMorgan Chase & Co. strategists including Eric Beinstein and Nathaniel Rosenbaum wrote in a note Monday.
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They expect wider high-grade spreads to be a likely knee-jerk reaction, but wouldn’t be surprised if it was short-lived, they wrote. Higher Treasury yields and oil prices could “counter-intuitively become a decent outcome for spreads,” given weightings toward energy, they added.
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Indexes that track credit default swaps for investment-grade and junk borrowers in Europe rose at Monday’s open but fell during the day.
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