Bloomberg News

Corporate Bond Risk Rises in Europe on Renewed Recovery Concerns

April 10, 2012

The cost of insuring against default on European corporate debt rose on concern that a slowdown in U.S. job creation is hampering the global recovery.

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings climbed 27 basis points to 667 at 10 a.m. in London, the highest since Jan. 19, according to BNP Paribas SA. An increase signals deterioration in perceptions of credit quality.

Employers in the U.S. added 120,000 jobs in March, the fewest in five months, a report showed April 6, while Spain is struggling to avoid becoming Europe’s fourth nation to require a bailout. Today is London’s “first chance to react” to the jobs figure as trading resumes after markets were closed April 6 and April 9 for the Easter holiday, according to Harpreet Parhar, a strategist at Credit Agricole SA in London.

“Any positive news from the U.S. has more than outweighed continuing concerns on the sovereign crisis side,” Parhar said. “If momentum in the data has changed, then we don’t have a positive balance from the U.S.”

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 7 basis points to 139.5. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 11.5 basis points to 247.5 and the subordinated index climbed 17 to 398.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments jumped 5.5 basis points to 276.5.

A basis point on a credit-default swap protecting 10 million euros ($13.1 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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