Bloomberg News

Bond Risk in Asia Increases, Credit-Default Swap Prices Show

August 27, 2012

The cost of insuring corporate and sovereign bonds from non-payment in Asia rose, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan advanced one basis point to 150 basis points as of 8:32 a.m. in Hong Kong, Royal Bank of Scotland Group Plc. prices show. The gauge, which was down 10.5 this month yesterday, is poised for its highest close since Aug. 3, according to data provider CMA.

The Markit iTraxx Japan index was unchanged at 198 basis points as of 9:21 a.m. in Tokyo, Deutsche Bank AG prices show. The measure has increased from 185 on July 31, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Australia index was also unchanged at 158 basis points as of 10:07 a.m. in Sydney, National Australia Bank Ltd. (NAB) prices show. The benchmark has traded between 148 and 168 basis points this month, 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: Taejin Park in Seoul at tpark31@bloomberg.net

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


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