June 10 (Bloomberg) -- The cost of protecting corporate bonds from default rose to the highest in almost two months on investor concern borrowing costs will climb as central banks seek to curb inflation.

Credit-default swaps on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 10 basis points to 497 at 11:05 a.m. in London, according to JPMorgan Chase & Co. The Markit iTraxx Japan index rose 3.5 basis points to 97.5, Credit Suisse Group prices showed.

European Central Bank President Jean-Claude Trichet said today controlling inflation is ``essential,'' after saying last week interest rates may rise in July. Federal Reserve Chairman Ben S. Bernanke said yesterday policy makers will ``strongly resist'' any surge in inflation expectations, delivering his clearest message yet that the central bank is done lowering rates.

``The markets are waking up to the changing biases of central bank policy makers across the globe,'' Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London, wrote in a note to investors today.

Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 4.25 basis points to 93.25, the highest level since April 16, JPMorgan said.

Housing Slump

Investor expectations that slumping house prices will hurt mortgage lenders drove up the cost of protecting debt sold by Anglo Irish Bank Plc and Bank of Ireland Plc. The Dublin-based lenders were downgraded to ``sell'' by Citigroup Inc. equity analysts yesterday because they are ``highly exposed'' to the property market.

Credit-default swaps on Anglo Irish, Ireland's third- largest bank, rose 18 basis points to 208, while contracts on Bank of Ireland, the nation's second-biggest lender, increased 9 to 129, according to CMA Datavision in London.

The cost of protecting debt sold by British Energy Group Plc rose after the Independent reported the U.K.'s biggest nuclear power producer may not receive another bid after it rejected an offer from Electricite de France SA that values the company at about 11 billion pounds ($21.5 billion). Contracts on the East Kilbride, Scotland-based company rose 30 basis points to 205, according to CMA.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality; a decline, the opposite.

A basis point on a credit-default swap contract protecting 10 million euros ($15.5 million) of debt from default for five years is equivalent to 1,000 euros a year.

To contact the reporter on this story: Michael Shanahan in London at mshanahan3@bloomberg.net

Last Updated: June 10, 2008 06:10 EDT