Bloomberg News

Credit Risk Falls in Europe After Spanish, Italian Debt Sales

January 12, 2012

Jan. 12 (Bloomberg) -- The cost of insuring against default on European sovereign and corporate debt fell after Spain sold almost twice the amount of bonds planned and Italy’s borrowing costs declined at auctions today.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments dropped 14 basis points to 354 at 12 p.m. in London. Contracts on Italy tumbled 32 basis points to 484 and Spain declined 23 to 390, according to CMA.

Spain sold 10 billion euros ($13 billion) of bonds while Italy issued 12 billion euros of bills, easing concerns the countries will struggle to finance their debts. The Italian Treasury sold one-year bills at 2.735 percent, less than half the 5.952 percent paid on similar securities on Dec. 12.

“It’s good news,” said Elisabeth Afseth, an analyst at Evolution Securities Ltd. in London, “Especially the Spanish auction with double the target amount issued, which is a good start to covering overall issuance requirement for the quarter.”

The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings decreased 23 basis points to 712, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 5.75 basis points to 170.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 12 basis points to 266.5 and the subordinated index dropped 19 basis points to 481.

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.

--Editors: Michael Shanahan, Paul Armstrong

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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