Bloomberg News

Corporate, Sovereign Bond Risk Fall in Europe, Debt Swaps Show

January 23, 2012

Jan. 23 (Bloomberg) -- The cost of insuring against default on European corporate and sovereign debt fell, according to traders of credit-default swaps.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings fell 17.5 basis points to 630, the lowest since Oct. 28, according to JPMorgan Chase & Co. at 3 p.m. in London. A decline signals improvement in perceptions of credit quality.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 6.5 basis points to 147.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped 10 basis points to 219.5 and the subordinated index fell 17 to 403.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments decreased six basis points to 331.

A basis point on a credit-default swap protecting 10 million euros ($13 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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