Bloomberg News

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

May 15, 2012

The cost of insuring against default on European sovereign and corporate debt rose, reversing an earlier decline, according to BNP Paribas SA.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed 3.5 basis points to 296.5 at 3:39 p.m. in London. 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 jumped 14.5 basis points to 730.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.5 to 172.5.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers was up seven basis points at 287.5 and the subordinated index was 9.5 higher at 473.5.

A basis point on a credit-default swap protecting 10 million euros ($12.9 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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