Bloomberg News

Bond Risk Falls as Traders Pare Greece Disorderly Default Bets

November 02, 2011

Nov. 2 (Bloomberg) -- The cost of insuring European debt fell as investors pared bets that Greece is headed for a disorderly default as leaders convene an emergency meeting to insist the country adhere to budget cuts imposed by its bailout.

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 21 basis points to 711, according to JPMorgan Chase & Co. at 3 p.m. in London. The gauge yesterday increased by the most ever, signaling deteriorating perceptions of credit quality.

Markets stabilized as leaders prepared to meet today in Cannes on the eve of a Group of 20 summit. Greek Prime Minister George Papandreou triggered the latest upheaval in the two-year long crisis by abruptly announcing plans to hold a parliamentary confidence vote and a referendum on the rescue.

“There’s a little bit of short covering and optimism perhaps on discussions in Cannes,” said Jeroen Van Den Broek, a strategist at ING Groep NV in Amsterdam. “As long as this is hanging over the market, I expect a bearish tone.”

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 10 basis points to 323. Contracts on Belgium declined 15 basis points to 288, France fell six to 186 and Germany was three lower at 92, according to CMA.

Swaps on Ireland dropped 52 basis points to 716, Italy tumbled 26 to 493 and Portugal was 54 lower at 1,018, while Spain fell 17 to 376. It costs $5.8 million in advance and $100,000 annually to protect $10 million of Greek debt for five years, CMA prices show.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 8.75 at 172 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined 12.5 basis points to 246 and the subordinated gauge was 25 lower at 465.

A basis point on a credit-default swap protecting 10 million euros ($13.8 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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