Bloomberg News

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

October 27, 2011

Oct. 27 (Bloomberg) -- The cost of insuring against default on sovereign and European corporate debt fell to the lowest in seven weeks, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped 17 basis points to 317, the lowest since Sept. 5. A decline signals improving perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 35 basis points to 685 basis points, the lowest since Sept. 1, according to JPMorgan Chase & Co. at 8 a.m. in London.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 9.5 at 165.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell 15.5 basis points to 226 and the subordinated gauge was 25 lower at 444.

A basis point on a credit-default swap protecting 10 million euros ($14 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: Paul Armstrong

To contact the reporter on this story: Andrew Reierson in London at areierson1@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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