Bloomberg News

Sovereign Bond Risk Little Changed in Europe, Debt Swaps Show

September 21, 2011

Sept. 21 (Bloomberg) -- The cost of insuring European sovereign debt was little changed and credit-default swaps on corporate debt fell.

The Markit iTraxx SovX Western Europe Index of 15 governments was unchanged at 350 basis points at 3 p.m. in London, according to Markit Group Ltd. A decline signals improvement in perceptions of credit quality; an increase, the opposite.

Swaps on Germany rose one basis point to a record 95.5, France increased two to 187 and Belgium was unchanged at 272, according to CMA. Italy increased 4.5 basis points to an all- time high of 518 on a closing basis, Portugal was three higher at 1,131 and Spain rose seven to 426. Ireland fell 12 to 803.

It now costs $6 million in advance and $100,000 annually to insure $10 million of Greek debt for five years, signaling a 96 percent probability of default within that time, CMA prices show.

The cost of insuring corporate bonds fell, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings was seven basis points lower at 788, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.5 basis points to 183. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers declined six basis points to 284, while the subordinated index was down two basis points to 496.

A basis point on a credit-default swap protecting 10 million euros ($13.7 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: Andrew Reierson

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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