Bloomberg News

Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show

October 20, 2011

Oct. 20 (Bloomberg) -- The cost of insuring against default on European corporate debt rose, according to traders of credit- default swaps.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 19 basis points to 753 basis points, according to JPMorgan Chase & Co. at 8:30 a.m. in London. An increase signals worsening perceptions of credit quality.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 4.75 at 180.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 9.5 basis points to 251.5 and the subordinated gauge was 15 higher at 493.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased six basis points to 331 basis points.

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: 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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