Bloomberg News

Sovereign, Bank Bond Risk Rises in Europe, Reversing Declines

October 28, 2011

Oct. 28 (Bloomberg) -- The cost of insuring against default on European sovereign and bank debt rose, reversing earlier declines, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose two basis points to 291 at 4:30 p.m. in London, signaling deterioration in perceptions of credit quality. The index had earlier dropped to the lowest since Aug. 16.

Contracts on Germany rose five basis points to 76, according to CMA. Swaps on other countries’ debt pared earlier declines with Spain falling eight basis points to 314, France down two at 156 and Italy 10 basis points lower at 408, according to CMA.

The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers rose 3.5 basis points to 207.5, according to JPMorgan Chase & Co. in London. The subordinated gauge was 13 lower at 392.5.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 15 basis points to 618 basis points. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 0.25 basis points at 149.75.

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: Andrew Reierson

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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