Bloomberg News

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

November 29, 2011

Nov. 29 (Bloomberg) -- The cost of insuring sovereign bonds fell, reversing an earlier advance, as European finance ministers prepared to discuss efforts to tame the region’s debt crisis.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped 10 basis points to 365 at 5 p.m. in London, after rising near to the all-time high closing price of 385 Nov. 25. An increase signals worsening perceptions of credit quality; a decline, the opposite.

Swaps on Belgium declined nine basis points to 369, France fell 13 to 224 and Germany was three lower at 108, while Italy declined five to 530 and Spain was down 14 at 452, CMA prices show.

The Markit iTraxx Financial Index of credit-default swaps on the subordinated debt of 25 banks and insurers was unchanged at 575 basis points, according to JPMorgan Chase & Co. The gauge had soared as much as 43 basis points to a record 618 after Moody’s Investors Service said it may lower ratings to reflect the potential withdrawal of government support.

Markit Group Ltd.’s index tracking swaps linked to senior financial bonds fell two basis points to 331 after jumping as much as 21 basis points.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings fell nine basis points to 791.5, JPMorgan prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings declined 3.5 basis points to 195.75.

A basis point on a credit-default swap protecting 10 million euros ($13.3 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: Abigail Moses in London at Mshanahan3@bloomberg.net

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


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