Bloomberg News

Financial Bond Risk Rises in Europe, Credit-Default Swaps Show

January 24, 2012

Jan. 24 (Bloomberg) -- The cost of insuring against default on European financial debt rose, according to traders of credit- default swaps.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers jumped 10.5 basis points to 234.5 and the subordinated index was 16 higher at 419, according to JPMorgan Chase & Co. at 2 p.m. in London. 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 climbed 5.5 basis points to 640. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose four basis points to 152.5 basis points.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased four 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.

--Editors: Michael Shanahan, Paul Armstrong

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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