Bloomberg News

Sovereign, Corporate Bond Risk Falls, Reversing Earlier Increase

May 18, 2012

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

The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 17.5 basis points to 738.5 at 12:30 p.m. in London. A decline signals improvement in perceptions of credit quality.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell one basis point to 305.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased two basis points to 179.5. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell 4.5 basis points to 300.5 and the subordinated index declined 0.5 to 504.5.

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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