Bloomberg News

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

April 11, 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 linked to 15 governments fell three basis points to 275 at 12:22 p.m. in London. A decline signals improvement in perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 19.5 basis points to 678.5, according to BNP Paribas SA. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell four basis points to 143 basis points.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell eight basis points to 250 and the subordinated index declined 10.5 to 402.5, BNP Paribas prices show.

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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