Bloomberg News

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

May 16, 2012

The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps.

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 4.5 basis points to 299.5 at 10 a.m. in London, the highest for the series that started trading March 20. An increase signals worsening perceptions of credit quality.

The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 21.5 basis points to 756.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced for a seventh day, climbing 6.5 basis points to 180.5. Both are the highest since Jan. 9.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose seven basis points to 296 and the subordinated index jumped 12 to 487.

Swaps on Spain soared as much as seven basis points to a record 553, before trading unchanged at 546, while contracts on Italy climbed 10 basis points to a four-month high of 512.

A basis point on a credit-default swap protecting 10 million euros ($12.7 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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