Bloomberg News

Australia, Japan Bond Risk Rises, Credit-Default Swaps Show

August 07, 2012

The cost of insuring corporate bonds in Australia and Japan from non-payment increased, according to traders of credit-default swaps.

The Markit iTraxx Australia index rose 1 basis point to 158.5 basis points as of 10:10 a.m. in Sydney, Westpac Banking Corp. (WBC) prices show. The gauge changed direction yesterday after falling 12.4 basis points over the two previous trading days to 155.9, its lowest since May 3, according to data provider CMA.

The Markit iTraxx Japan index advanced 1 basis point to 205.5 as of 9:42 a.m. in Tokyo, Citigroup Inc. prices show. The measure has climbed every day since Aug. 1, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. It’s ranged 136.2 basis points to 217.3 basis points this year.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 1 basis point to 149.5 as of 8:31 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The index has traded 148.7 basis points to 175.3 basis points this quarter, CMA prices show.

Credit-default swap indexes are benchmarks for insuring 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: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net

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


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