Bloomberg News

Sovereign Bond Risk Falls in Europe, Reversing Climb to Record

January 09, 2012

Jan. 9 (Bloomberg) -- The cost of insuring against default on European sovereign debt fell, reversing an earlier rise, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined two basis points to 380 at 11:30 a.m. in London, after climbing to a record 386. A decline signals improvement in perceptions of credit quality.

The cost of insuring corporate and financial debt rose, according to JPMorgan Chase & Co. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased six basis points to 757.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.25 basis points to 179.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 4.5 basis points to 295 and the subordinated index increased three to 528.

A basis point on a credit-default swap protecting 10 million euros ($12.8 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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