Bloomberg News

Sovereign, Company Bond Risk Falls in Europe, Default Swaps Show

May 28, 2012

The cost of insuring against default on European sovereign and corporate debt fell, according to data compiled by Bloomberg.

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell five basis points to 309 at 7:40 a.m. in London. A decline signals improvement in perceptions of credit quality.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 22 basis points to 692.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 4.5 at 168 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined 7.5 basis points to 288 and the subordinated gauge was 10 lower at 485.

A basis point on a credit-default swap protecting 10 million euros ($12.6 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: Michael Shanahan in London at Mshanahan3@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net


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