Bloomberg News

Sovereign Credit Swap Index Falls in Europe, Reversing Increase

September 28, 2011

Sept. 28 (Bloomberg) -- The cost of insuring against default on European sovereign debt fell, reversing an earlier increase.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped four basis points to 332 at 2 p.m. in London. Indexes linked to corporate debt rose.

Credit-default swaps on France rose 2.5 basis points to 173.5 and Germany was little changed at 101.5, according to CMA. Italy was eight higher at 467 and Portugal was up 14 at 1,086, while Spain rose seven basis points to 374. Belgium was unchanged at 252 and Ireland fell 31 to 723.

It costs $6.1 million upfront and $100,000 annually to insure $10 million of Greek debt for five years. An increase signals worsening perceptions of credit quality; a decline, the opposite.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose one basis point to 805. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was 2.5 higher at 193.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell one basis point to 264 and the subordinated gauge was up five at 511, according to JPMorgan Chase & Co.

A basis point on a credit-default swap protecting 10 million euros ($13.6 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, 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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