March 6 (Bloomberg) -- The cost of protecting Australian corporate bonds from default climbed to a record on rising unemployment data from the U.S. and concern banks and insurance companies will face steeper losses.

The Markit iTraxx Australia index of credit-default swaps on the debt of 25 companies, including Qantas Airways Ltd. and BHP Billiton Ltd., rose 15 basis points to 435 at 10:54 a.m. in Sydney, according to Citigroup Inc. The benchmark has jumped more than 75 basis points this year, CMA DataVision prices show.

“Economic news overnight was pretty depressing and equities fell significantly, so it’s not a good backdrop for investors who want to take credit risk,” said Mark Bayley, a director of credit with ABN Amro Holding NV in Sydney. “Fear of systemic risk is raising its ugly head again as the bad news from financial sectors in the U.S. and Europe is unrelenting.”

U.S. and European stocks tumbled yesterday, driving the Standard & Poor’s 500 Index to the lowest level since 1996, after Moody’s Investors Service said it may cut JPMorgan Chase & Co.’s credit rating and China quelled speculation the government will add to its stimulus plan. More than 600,000 Americans filed claims for jobless benefits for a fifth straight week, the worst performance since 1982, pointing to a deteriorating job market that may deepen the spending slump.

The Dow Jones Industrial Average fell 20 percent since President Barack Obama’s Inauguration Day, the fastest drop under a new president, as investors speculated his stimulus measures won’t revive the economy anytime soon.

Japanese Swaps

The Markit iTraxx Japan index jumped 25 basis points to 530 at 10:12 a.m. in Tokyo, Barclays Capital prices show.

Corporate financing “will become even more difficult” toward the fiscal year end on March 31, Bank of Japan Deputy Governor Hirohide Yamaguchi said in an interview. Having cut interest rates close to zero, the central bank is buying corporate bonds to channel funds to businesses whose profits are falling the most in more than 30 years as demand dries up at home and abroad.

The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 7.5 basis points to 462.5 as of 9:14 a.m. in Hong Kong, according to ICAP Plc.

Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada rose 3.5 basis points to 247 yesterday, according to Phoenix Partners.

U.S. Banks

Contracts on New York-based JPMorgan climbed 30 basis points to 220, while Citigroup rose 85 basis points to a record 575 and San Francisco-based Wells Fargo & Co. rose 40 basis points to 295, Phoenix prices show.

In London, the Markit iTraxx Financial index of 25 European banks and insurers jumped 33 basis points to 195, according to JPMorgan data.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. An increase in the price suggests deteriorating investor perceptions of credit quality and a decrease indicates improvement.

The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.

To contact the reporter on this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net

Last Updated: March 5, 2009 21:25 EST