Bloomberg News

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

March 27, 2012

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

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped six basis points to 267, according to BNP Paribas SA at 7:35 a.m. in London. A decline signals improved perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 12.5 basis points to 577.5.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 2.5 at 114.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined five basis points to 200 and the subordinated gauge was 6.5 lower at 316.5.

A basis point on a credit-default swap protecting 10 million euros ($13.3 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: 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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