Bloomberg News

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

May 11, 2012

The cost of insuring against default on European sovereign and corporate debt rose, heading for the biggest weekly increase in about two months.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 1.5 basis points to 285 at 8:35 a.m. in London, and is up 9 basis points this week, the most since March 23. An increase signals deterioration in perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 12.5 basis points to 700. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 4.5 basis points to 161, and is up from 145 last week, heading for the biggest increase since November 25.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose five basis points to 270 and the subordinated index jumped 10 to 440.

A basis point on a credit-default swap protecting 10 million euros ($13 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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