Bloomberg News

Company Bond Risk Little Changed in Europe Before Crisis Summit

October 26, 2011

Oct. 26 (Bloomberg) -- The cost of insuring against default on corporate and sovereign debt was little changed in Europe as leaders prepare to discuss a solution to the region’s debt crisis at their second summit in four days.

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings increased 2.5 basis points to 721.5, according to JPMorgan Chase & Co. at 10:30 a.m. in London. An increase signals worsening perceptions of credit quality.

European leaders are holding the 14th crisis summit in 21 months to come up with a complete plan to deal with the region’s debt-crisis. The gathering comes after six days of discussions among finance ministers, central and commercial bankers, chancellors, presidents and prime ministers over the shape of Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion-euro ($612 billion) rescue fund into a more potent weapon.

“The big question for the day is can they seal the deal?” Anke Richter, a strategist at Mizuho International in London, wrote in a note. “The market has already a good idea of the various elements of the package and hopes for a ‘big bazooka’ have long been buried.”

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 0.25 basis point at 175.75. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was unchanged at 243 basis points and the subordinated gauge was three lower at 474.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments was unchanged at 334 basis points.

A basis point on a credit-default swap protecting 10 million euros ($13.9 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: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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