Spanish debt risk climbed to a record for a second day and signalled a 37 percent chance the nation will default as its borrowing costs surged to levels that prompted its neighbors to seek bailouts.
Credit-default swaps tied to Spain’s bonds jumped 19 basis points to 521, according to CMA prices at 11 a.m. in London. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments rose three basis points to 283, while swaps on Italy climbed eight basis points to a three-month high of 443.
Spain is due to sell new debt tomorrow before European officials travel to Washington later this week to seek a bigger war chest to battle the financial crisis. The nation’s 10-year bond yield soared to 6.15 percent, the highest since Dec. 1 and approaching the 7 percent level that foresaw the international rescues of Greece, Ireland and Portugal.
“The focus is on Spain and contagion,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “There isn’t a rescue fund in place sufficient to deal with both Spain and Italy.”
The Markit iTraxx Crossover Index of credit-default swaps on 50 European companies with mostly high-yield credit ratings rose 2.5 basis points to 682.5, according to BNP Paribas SA.
The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers increased 4.25 basis points to 251.25, the highest in almost a week. Swaps on Banco Santander SA, Spain’s biggest lender, rose 12 basis points to 433.
A basis point on a credit-default swap protecting 10 million euros ($13 million) of debt 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