Bloomberg News

Corporate Bond Risk Falls in Europe After U.S. Unemployment Drop

February 05, 2012

Feb. 3 (Bloomberg) -- The cost of insuring against default on European corporate debt fell after a report showed the U.S. jobless rate unexpectedly dropped to the lowest in three years.

Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings decreased 18 basis points to 562, according to JPMorgan Chase & Co. at 2 p.m. in London. The measure is headed for a seventh straight weekly decline, the longest run in five years.

Sentiment was boosted by speculation the world’s largest economy is improving and a Greek debt deal is imminent. The 243,000 increase in U.S. payrolls was the biggest jump since April and exceeded all forecasts in a Bloomberg News survey, Labor Department data showed. The unemployment rate fell to 8.3 percent, the lowest since 2009.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 3.75 basis points to 131 basis points and is headed for a fourth weekly decrease. A decline signals improvement in perceptions of credit quality.

The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers dropped five basis points to 198 and the subordinated index declined seven basis points to 343.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell three basis points to 320, the lowest since Dec. 5.

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.

--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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