Bloomberg News

Sovereign, Corporate Bond Risk Falls, Credit-Default Swaps Show

February 02, 2012

Feb. 2 (Bloomberg) -- The cost of insuring against default on European sovereign and corporate debt fell, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined five basis points to 321 basis points at 8 a.m. in London, the lowest since Dec. 5. A decline signals improvement in perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased five basis points to 580, the lowest since Aug. 8, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell one basis point to 135.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 2.5 basis points to 207 and the subordinated index dropped four to 358.

A basis point on a credit-default swap protecting 10 million euros ($13.1 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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