Bloomberg News

Australian Bond Risk Drops, Credit-Default Swap Prices Show

July 17, 2012

The cost of protecting Australian corporate bonds from default declined, according to traders of credit-default swaps.

The Markit iTraxx Australia index dropped 2 basis points to 175 as of 10:52 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. (ANZ) The index was set for its lowest closing level since July 11, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 166 basis points as of 8:36 a.m. in Hong Kong, Credit Agricole SA (ACA) prices show. The measure has traded between 210 and 132.5 basis points this year, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index was little changed at 179.5 basis points as of 9:32 a.m. in Tokyo, Deutsche Bank AG prices show. The index has declined from this year’s peak of 217 basis points on May 18, CMA prices show.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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