Bloomberg News

Portugal Leads Surge in European Sovereign Debt Risk to Record

June 23, 2011

June 23 (Bloomberg) -- The cost of insuring against default on Portuguese sovereign debt surged to a record, driving a benchmark gauge of credit-default swaps on the region’s government debt to an all-time high.

Swaps on Portugal climbed 42 basis points to 824, and the Markit iTraxx SovX Western Europe Index of contracts on 15 governments jumped 16 basis points to 240 at 2:30 p.m. in London. An increase signals deteriorating perceptions of credit quality.

Swaps on Greece rose 63 basis points to 2,050, signaling an 83 percent chance of default within five years, according to CMA. Ireland increased 40 to 795 and Spain rose 21.5 to 306.5, while Italy was 10.5 higher at 199 and Belgium was up 15 at 167.

Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 12 basis points to 422, the highest since Jan. 11, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.75 basis points to 114 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 5.5 basis points to 168.5 and the subordinated index climbed 7 to 297.

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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