Bloomberg News

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

February 07, 2012

Feb. 7 (Bloomberg) -- The cost of insuring against default on European sovereign and corporate debt rose, reversing an earlier decline, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed one basis point to 322 basis points at 11:30 a.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 increased 5.5 basis points to 556.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings rose 1.25 basis points to 129.5.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased two basis points to 195 and the subordinated index was one higher at 337.

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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