Bloomberg News

Sovereign, Corporate Bond Risk Rise, Credit-Default Swaps Show

December 12, 2011

Dec. 12 (Bloomberg) -- The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 13 basis points to 376.5 at 9 a.m. in London, approaching the record 385 set Nov. 25. An increase signals deterioration in perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 20.5 basis points to 770.5, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings climbed six basis points to 179.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 11 basis points to 307 and the subordinated index rose 17.5 to 547.5.

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: 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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