July 30 (Bloomberg) -- The risk of owning corporate bonds surged by a record as losses on U.S. subprime mortgages at Germany's IKB Deutsche Industriebank AG triggered concerns of global market contagion.

Contracts on 10 million euros ($13.8 million) of debt included in the iTraxx Crossover Series 7 Index of 50 European companies increased as much as 60,000 euros to 504,000 euros, according to JPMorgan Chase & Co. The CDX North American Investment-Grade Index rose $16,000 to $97,000, Deutsche Bank AG prices show.

Investors are fleeing corporate credit in the fastest selloff in seven years, Barclays Capital said today. The rout that began in mid-June when two Bear Stearns Cos. hedge funds almost collapsed spread worldwide as Blackstone Group LP stepped in last week to support Sydney-based Basis Capital Fund Management Ltd. and ABN Amro Holding NV's co-owned Absolute Capital Group Ltd. froze investor accounts.

`` It's pure fear,'' said Gary Jenkins, a partner at London-based hedge fund Synapse Investment Management, which manages $650 million of debt assets. ``It's fear of the unknown, fear of hedge funds unwinding, fear of knock-on effects of the subprime meltdown.''

Jenkins said the iTraxx Crossover Index is more likely to double to 1,000 euros than return to the level of about 200 euros at the start of June.

Investors use credit-default swaps to speculate on the ability of companies to repay debt. An increase indicates worsening perceptions of credit quality.

Investment Grade

The iTraxx Europe Series 7 Index of 125 companies with investment-grade credit ratings including Europe's major banks jumped 16,000 euros to 72,000 euros, JPMorgan prices show, the biggest increase since the index started three years ago.

Credit-default swaps on Frankfurt-based Deutsche Bank, Germany's biggest bank, rose 10,000 euros to a record 60,000 euros, according to Royal Bank of Scotland Group Plc prices. The contracts cost 10,000 euros at the start of June.

IKB, a Dusseldorf-based bank that focuses on small and medium-sized companies, said in a statement today it was scrapping a 280 million-euro earnings forecast as ``massive uncertainty'' in the markets threatened access to funding. State-owned KfW Group, which holds a 38 percent stake in IKB, said it will cover the company against potential losses. IKB said it's replacing Chief Executive Officer Stefan Ortseifen with Guenther Braeunig, a management board member at KfW.

``Subprimemania is spilling into the real economy,'' said Jochen Felsenheimer, head of credit derivatives strategy at UniCredit SpA in Munich. ``IKB's statement was an end for those who believed this is a derivatives linked problem only.''

Markets Roiled

Fallout from the subprime mortgage rout is roiling markets around the world as rising risk premiums mean companies face having to pay higher interest on their borrowings. Investor confidence in high-risk, high-yield loans fell to the lowest in at least nine months today as the iTraxx LevX Index of credit- default swaps on loans to 35 European companies dropped 0.25 to 94.50, according to Deutsche Bank.

``There's a lot of pain out there, and there's a lot of risk aversion,'' said Abdul K. Hussain, a portfolio manager at Dubai-based hedge fund Mashreq Capital DIFC Ltd., which manages $250 million in fixed-income assets. ``You can't go through the volatility we've seen in the past week without seeing longer term repercussions.''

Credit-default swap contracts based on 10 million euros of IKB debt, which traded at 15,000 euros a month ago, were at 95,000 euros today, according to Royal Bank of Scotland. The contracts were at 120,000 euros on July 27.

IKB's shares fell the most in at least a decade, dropping 19 percent to 17.65 euros at 1:20 p.m. in Frankfurt. The stock fell 33 percent this month on anticipation the company could be hurt by the subprime market.

To contact the reporters on this story: Hamish Risk in London hrisk@bloomberg.net

Last Updated: July 30, 2007 07:44 EDT