Bloomberg News

Sovereign Bond Risk Rises in Europe, Credit-Default Swaps Show

May 21, 2012

The cost of insuring against default on European sovereign debt rose for a seventh day, according to BNP Paribas SA.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed four basis points to 315 at 8:08 a.m. in London, the highest since the current version started trading in March. An increase signals deterioration in perceptions of credit quality.

The cost of insuring corporate debt was little changed, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings 0.5 basis points lower at 754.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was unchanged at 182.5 basis points.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 1.5 basis points to 306.5 and the subordinated index rose 3.5 to 520.5.

A basis point on a credit-default swap protecting 10 million euros ($12.8 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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