Sovereign Bond Risk Rises in Europe, Credit-Default Swaps Show
February 08, 2012, 7:01 PM ESTBy Abigail Moses
Feb. 8 (Bloomberg) -- The cost of insuring against default on European sovereign and bank debt rose, reversing an earlier decline, according to traders of credit-default swaps.
The Markit iTraxx SovX Western Europe Index linked to 15 governments rose from a three-month low, climbing three basis points to 321 at 2:30 p.m. in London. A decline signals improved perceptions of credit quality; an increase, the opposite.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed four basis points to 196, according to JPMorgan Chase & Co. The subordinated gauge was four basis points higher at 336.
Contracts on the Markit iTraxx Crossover Index of 50 European companies with mostly high-yield credit ratings fell one basis point to 552.5, JPMorgan prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.25 basis point to 129 basis points.
A basis point on a credit-default swap protecting 10 million euros ($13.3 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: Paul Armstrong
To contact the reporter on this story: Michael Shanahan in London at Mshanahan3@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
