Bloomberg News

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

February 27, 2012

The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed two basis points to 346.5 at 8:15 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 7.5 basis points to 582.5, according to BNP Paribas SA.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 132 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 1.5 basis points to 214.5 and the subordinated index rose five to 365.

A basis point on a credit-default swap protecting 10 million euros ($13.5 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.

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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