Bloomberg News

Corporate Bond Risk Falls in Europe on Greek Resolution Bets

February 20, 2012

Feb. 20 (Bloomberg) -- The cost of insuring European corporate debt fell on speculation the region’s finance ministers will finalize a 130 billion-euro ($171 billion) Greek bailout at a meeting today.

Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings decreased for a third day, falling 21.5 basis points to 575, according to JPMorgan Chase & Co. at 9:30 a.m. in London. A decline signals improvement in perceptions of credit quality.

Politicians are scrambling to resolve differences so that Greece won’t default on 14.5 billion euros of debt maturing March 20. German Chancellor Angela Merkel, Greek Prime Minister Lucas Papademos and Italian premier Mario Monti on Feb. 17 expressed confidence that ministers will resolve open questions.

“Investors seem to be expecting a positive outcome tonight,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “The risk of disappointment is not negligible.”

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell six basis points to 130.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased nine basis points to 213.5 and the subordinated index dropped 15 to 365.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments declined for a second day, falling two basis points to 336.

A basis point on a credit-default swap protecting 10 million euros 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, Andrew Reierson

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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