Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show
January 20, 2012, 7:46 AM ESTBy Abigail Moses
Jan. 20 (Bloomberg) -- The cost of insuring against default on European corporate debt fell, heading for the biggest weekly declines since Dec. 2, according to traders of credit-default swaps.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased one basis point to 645, according to JPMorgan Chase & Co. at 12 p.m. in London. The gauge is heading for a fifth weekly drop, signaling improvement in perceptions of credit quality.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 0.25 basis point to 151.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 2.5 basis points to 220.5 and the subordinated index tumbled 14 to 406. The measures are heading for a second weekly decline.
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell four basis points to 340, the lowest since Dec. 7.
A basis point on a credit-default swap protecting 10 million euros ($12.9 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
