Bloomberg News

Asia-Pacific Bond Risk Surges Amid Greece Default Concerns

September 11, 2011

Sept. 12 (Bloomberg) -- The cost of insuring Asia-Pacific bonds from default rose to the highest level in more than two years as speculation Germany is preparing for a Greek default spurred turmoil in financial markets worldwide.

The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan increased 13 basis points to 175 basis points as of 10:02 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The bond risk benchmark is headed for its highest close since July 17, 2009, according to data provider CMA.

“Greece is at the forefront again and investors willing to take risk are nowhere in sight,” said Jason Watts, Sydney-based head of credit trading at National Australia Bank Ltd.

Officials in Chancellor Angela Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. BNP Paribas SA, Societe Generale SA and Credit Agricole, France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of Greek holdings, two people with knowledge of the matter said on Sept. 10.

The euro dropped to its lowest level since 2001 against the yen today as the prospect of the common currency region’s first default spurred investors to seek the safest assets.

Australia Bond Risk

The Markit iTraxx Australia index rose 18 basis points to 191 basis points as of 11:59 a.m. in Sydney, according to Westpac Banking Corp. That’s on course for the biggest daily increase since May 7, 2010, and the highest close since July 17, 2009, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index advanced 12 to 164 as of 11:04 a.m. in Tokyo, Deutsche Bank AG prices show. That’s the highest since May 25 last year, CMA prices in New York show.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.

--Editor: Edward Johnson

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net.

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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