Bloomberg News

Portugal, Ireland, Greece Credit-Default Swaps Rise to Records

July 08, 2011

July 8 (Bloomberg) -- The cost of insuring against default on Portuguese, Irish and Greek government debt rose to records, leading a gauge of the region’s sovereign risk to an all-time high, according to traders of credit-default swaps.

Contracts on Portugal climbed 38 basis points to 1,016, signaling a 58 percent probability of default within five years, according to CMA prices at 3:30 p.m. in London. Swaps on Ireland jumped 59 basis points to 914, Greece surged 25 to 2,175, and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 10 to 256.

Swaps on Italy increased 27.5 basis points to 245, the highest level since Jan. 11, while Spain climbed 7.5 to 310 and Belgium was up 13 at 174. An increase signals deterioration in perceptions of credit quality.

The cost of insuring corporate bonds also rose after a report showed U.S. employers added fewer workers than forecast in June. Payrolls increased by 18,000 in June, less than the 105,000 median estimate in a Bloomberg survey of economists. The unemployment rate rose to 9.2 percent, the highest this year.

The Markit iTraxx Crossover Index of contracts linked to 40 companies with mostly high-yield credit ratings jumped 11 basis point to 421, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed 3 basis points to 112. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 7.5 basis points to 171 and the subordinated index increased 14 to 303.5.

A basis point on a credit-default swap protecting 10 million euros ($14.3 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.

--Editors: Michael Shanahan, Paul Armstrong

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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