Bloomberg News

Asia-Pacific Bond Risk Jumps on Jobs, European Election Results

May 06, 2012

The cost of insuring Asia-Pacific corporate and sovereign bonds from default jumped to more than three-month highs after U.S. job growth slowed and European elections stoked concern the region’s debt crisis may worsen.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan climbed 7 basis points to 171 basis points as of 8:21 a.m. in Hong Kong, according to Credit Agricole SA. (ACA) The gauge is set for its highest close since Feb. 2, according to data provider CMA.

U.S. employers added the fewest jobs in six months, French Socialist Francois Hollande was elected President and Greek voters flocked to anti-bailout parties over the weekend. Hollande’s platform calls for policies that German Chancellor Angela Merkel opposes, including higher taxes, increased spending and a delayed deficit-reduction effort.

Credit-default swap prices rose due to the weaker-than- forecast jobs data and “the implications of European election results yesterday,” Mark Reade, a Hong Kong-based credit analyst at Credit Agricole, said by telephone today. “There is a new president in France and the parties that have traditionally objected to the bailout in Greece have gained.”

The Markit iTraxx Australia index rose 6 basis points to 165 as of 10:21 a.m. in Sydney, Credit Agricole prices show. The index is headed for its highest close since Jan. 18, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

European Budget Discipline

The Markit iTraxx Japan index jumped 7 to 189 from its close on May 3 as of 9:23 a.m. in Tokyo, according to Deutsche Bank AG prices. The measure is poised for its highest close since Jan. 12, CMA prices show. Japan’s markets were closed on May 4 for a national holiday.

Hollande, the first Socialist in 17 years to control Europe’s second-biggest economy, has called for a re-negotiation of a budget-discipline pact crafted by European leaders in March, saying it needs to place more emphasis on growth.

U.S. payrolls increased by 115,000 in April, according to Labor Department data on May 4, compared with the median estimate for a 160,000 advance in a Bloomberg News survey.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.

To contact the reporter on this story: Benjamin Garvey in Hong Kong at bgarvey8@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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