Bloomberg News

Bond Risk Increases in Europe After G-20 Refuses Rescue Funds

February 27, 2012

The cost of insuring against default on European sovereign and corporate debt rose after the Group of 20 nations refused to help bolster the region’s bailout funds.

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings rose 13 basis points to 586.5, according to JPMorgan Chase & Co. at 12 p.m. in London. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 2 basis points to 346.5.

G-20 officials meeting in Mexico City at the weekend told euro-area policy makers to offer more financial firepower before they could consider lending outside support. Leaders of the 17- member monetary union have said they’ll decide in March whether to lift a 500 billion-euro ($672 billion) limit to bailout funding, with German Chancellor Angela Merkel’s government resisting lifting its contribution.

“It’s clear that the non-Eurozone members are reluctant to commit further funds until the EU and Germany clarify exactly to what scale they’ll allow the various bailout packages to run to,” said Brian Barry, an analyst at Investec Bank Plc in London.

The Markit iTraxx Europe Index of swaps on 125 companies with investment-grade ratings was 2 basis points higher at 132.8. An increase signals deterioration in perceptions of credit quality.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 3 basis points to 216 basis points and the subordinated index climbed 4.5 basis points to 364 according to JPMorgan Chase & Co.

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.

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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