Oct. 10 (Bloomberg) -- The cost to protect corporate debt from default soared to records around the world on investor concern that the deepening credit crisis will trigger rising failures as companies struggle to finance their businesses.

Credit-default swaps on the Markit CDX North America Investment Grade index, linked to 125 companies in the U.S. and Canada, jumped 8 basis points to 206 basis points as of 8:16 a.m. in New York, according to Barclays Capital. Contracts on Europe's benchmark Markit iTraxx Crossover index rose 63 basis points to 736, and have risen 165 basis points this month, according to JPMorgan Chase & Co. Indexes in Australia and Japan also rose.

Credit markets are frozen as banks hoard cash amid concern that the worsening crisis will claim more companies, including Morgan Stanley and General Motors Corp., and spur a prolonged global recession. The collapse of Lehman Brothers Holdings Inc. may force sellers of credit-default swaps including Pacific Investment Management Co. to make the biggest-ever payout in the $55 trillion market after an auction in New York later today.

``At the moment it's irrelevant for investors what fundamental value is,'' said Mark Bayley, director of credit at ABN Amro Holding NV in Sydney. ``There's probably value in a lot of asset classes at the moment, but there are no buyers.''

The cost to protect U.S. and European high-risk, high-yield loans jumped to a record for a second day on speculation that investors will be forced to sell assets. In New York, the Markit LCDX index, which falls as sentiment deteriorates, dropped 2.25 percentage point to 83, according to Goldman Sachs Group Inc.

Forced Sellers, No Bidders

The Markit iTraxx LevX index of credit-default swaps on loans to 75 companies slumped to 85, according to JPMorgan, from 88.5 yesterday. The current series of the index started at 99 on Sept. 29.

``It's all forced sellers and no bidders,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London.

Money market rates continued to rise even after a raft of cuts in borrowing costs by global central banks. The London interbank offered rate for three-month loans in dollars rose to 4.82 percent today, the highest level since Dec. 27, as banks avoid each other.

``Cutting interest rates doesn't necessarily change the underlying problem in the credit markets,'' said Sharada Selvanathan, a currency strategist at BNP Paribas SA in Hong Kong. The real problem is that rates measuring the risk of trading with banks aren't declining, she said.

The Markit iTraxx Asia index of 20 high-risk, high-yield borrowers outside Japan advanced 160 basis points to 950, according to Barclays Capital. Five-year contracts on South Korean government debt rose 30 basis points to 330.

Debt Speculation

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a country or company's ability to repay debt. They 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. An increase indicates deterioration in the perception of credit quality; a decline, the opposite.

The upfront price on credit-default swaps protecting against a Morgan Stanley default jumped as much as 9 percentage points to 28 percentage points, according to broker Phoenix Partners Group. That's in addition to 5 percentage points a year and means it would cost $2.8 million initially and $500,000 a year for five years to protect $10 million in Morgan Stanley debt.

The investment bank faces a credit rating cut by Moody's Investors Service because of a poor profit outlook.

Contracts on the finance arm of General Electric Co. rose about 44 basis points to 617 basis points, according to CMA Datavision. GE said today its profit from continuing operations fell 12 percent to $4.48 billion.

Japan

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

The three-month interbank offered rate in Tokyo, known as Tibor, was fixed at 0.878 percent today, the highest since March 1998. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate gained to 108 basis points in Sydney from 89 yesterday.

The Markit iTraxx Japan index increased 30 basis points to 230 in Tokyo, according to prices from Morgan Stanley. The region's benchmark of 50 investment-grade borrowers rose 55 basis points to 325, Barclays data show.

To contact the reporters on this story: Oliver Biggadike in Tokyo at obiggadike@bloomberg.net; Neil Unmack in London nunmack@bloomberg.net;

Last Updated: October 10, 2008 08:56 EDT