Bloomberg News

Sovereign Credit Risk Increases to One-Month High in Europe

February 22, 2012

Feb. 22 (Bloomberg) -- The cost of insuring against default on European sovereign debt rose to the highest in a month, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 11 basis points to 349 basis points at 4 p.m. in London, the highest since Jan. 18. 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 were 9.5 basis points higher at 581.5, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 133 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 8.5 basis points to 225 and the subordinated gauge was 11 higher at 379.5.

A basis point on a credit-default swap protecting 10 million euros ($13.2 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


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