Bloomberg News

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

March 29, 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 increased 1.5 basis points to 269.5, according to BNP Paribas SA at 10:45 a.m. in London. A rise signals worsening perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings added 9.5 basis points to 602.5.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 2.5 at 123.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 5.5 basis points to 214.5 and the subordinated gauge was 11.5 higher at 349.5.

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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