The cost of insuring against default on European corporate debt fell for a second day on speculation policy makers will bolster support for the economic recovery.
The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 16 basis points to 574.5, according to JPMorgan Chase & Co. at 10:30 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 2.75 basis points to 115. A decline signals improvement in perceptions of credit quality.
Investors are betting European Union rescue funds will be raised to 940 billion euros ($1.26 trillion) and the Federal Reserve will offer a third round of quantitative easing after Chairman Ben Bernanke yesterday signaled he will continue to stimulate the U.S. economy. A report today may show U.S. consumer confidence held near a one-year high.
“Anything QE-related helps the market and the prospect of having the EU bailout fund enlarged is viewed as positive,” said Harpreet Parhar, a strategist at Credit Agricole SA (ACA) in London. “People will start to realize Bernanke never specifically mentioned QE and even a 940 billion euro firewall is unlikely to be a game changer for the sovereign debt crisis.”
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell 3.5 basis points to 200 and the subordinated index declined seven to 316.
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.
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