Bloomberg News

Greece Credit-Default Swaps Surge to Record 2,189 Basis Points

June 16, 2011

June 16 (Bloomberg) -- The cost of insuring against default on Greek, Irish and Portuguese government debt surged to records, driving a gauge of sovereign bond risk to an all-time high, on concern Europe’s deficit crisis is worsening.

Credit-default swaps on Greece soared 435 basis points to 2,189, while Ireland rose 37 to 799 and Portugal climbed 21 to 806, according to CMA prices at 5 p.m. in London. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 9 basis points to 235. An increase signals deteriorating perceptions of credit quality.

Investors are betting Greece will default if it’s unable to pass the austerity measures needed to qualify for the next installment of international aid. Greek Prime Minister George Papandreou was set to shuffle his Cabinet and seek to win a confidence vote today as protests over budget cuts fueled speculation the measures will be put in jeopardy.

“A failure to reach a political agreement in Greece risks the next tranche of funds, due to be paid at the end of this month, to be withheld,” said Gary Jenkins, co-head of fixed income at Evolution Securities in London. “If unresolved then this could potentially result in a default by the middle of July.”

Investor confidence was also hurt by comments from Irish Finance Minister Michael Noonan that senior bondholders should share in the losses of Anglo Irish Bank Corp. and Irish Nationwide Building Society, reversing a policy of protecting owners of senior securities.

Spain, Italy

Swaps on Spain climbed 15 basis points to 301, the highest since January, Italy rose 8 to 183 and Belgium was 8 higher at 159.

The cost of insuring European corporate debt also rose. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings increased 1 basis point to 112.75 basis points, the highest since Jan. 10, according to JPMorgan Chase & Co.

The Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings rose 5 basis points to 418. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell 8.5 basis points to 171.5 and the subordinated index was 8 lower at 300.

A basis point on a credit-default swap protecting 10 million euros ($14.2 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

--Editor: Michael Shanahan

To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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