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Sovereign Credit Risk Declines From Records on ECB Bond Buying

November 16, 2011

Nov. 16 (Bloomberg) -- The cost of insuring against default on sovereign debt fell from records as the European Central Bank was said to be buying Italian and Spanish government bonds.

Credit-default swaps on Italy dropped 23 basis points to 572 and Spain declined 17 to 465, according to CMA at 10 a.m. in London. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments decreased nine basis points to 353. A decline signals improvement in perceptions of credit quality.

The ECB bought larger-than-usual sizes and quantities of Italian debt, said two people with knowledge of the trades, as investors shun the nation’s bonds. The move also pushed the yield on 10-year Italian bonds below 7 percent, the level that forced European Union bailouts of Greece, Ireland and Portugal.

“The ECB is the only buyer any salesman with bonds to sell is bothering to call,” said Bill Blain, a strategist at Newedge Group in London.

Default swaps on Belgium fell five basis points to 339, France declined 10 to 223 and Austria was six lower at 216, all from records. Germany fell five basis points to 92, CMA prices show.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 22 basis points to 750.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 5.25 basis point to 184.5 basis points.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased eight basis points to 290 and the subordinated index dropped 23 to 522.

A basis point on a credit-default swap protecting 10 million euros ($13.5 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.

--With assistance from Paul Dobson in London. Editor: Michael Shanahan, Cecile Gutscher

To contact the reporter on this story: Abigail Moses in London at

To contact the editor responsible for this story: Paul Armstrong at

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