Corporate Bond Risk Falls as Investors Pare Bets on Sovereign Debt Crisis
The cost of insuring against losses on corporate bonds fell as investors pared bets Europe’s sovereign debt crisis will slow the global economy.
The Markit iTraxx Crossover Index of credit-default swaps on 50 European companies with mostly high-yield ratings decreased 32.5 basis points to 591.5, according to Markit Group Ltd. In New York, the Markit CDX North America Investment Grade Index, declined 3.5 basis points to 119.5.
Investor confidence was boosted by the Organization for Economic Cooperation and Development raising its global growth forecasts for this year and next. Stocks rebounded, after yesterday’s slide drove the MSCI World Index to a nine-month low, and commodities rallied.
“A lot of it is probably short covering,” said Nick Burns, a credit strategist at Deutsche Bank AG in London.
The economy of the OECD’s 30 members will grow 2.7 percent this year, more than the 1.9 percent predicted in November, the Paris-based group said today in a report. Including non-members such as China, the global economy will expand 4.6 percent this year and 4.5 percent in 2011, compared with an average of 3.7 percent during the decade through 2006.
Nouriel Roubini, the New York University professor who predicted the global financial crisis, said markets aren’t convinced Greece will control a deficit that has undermined confidence in the euro. There are also concerns Spain and Portugal lack the political will to cut spending, Roubini said.
The euro weakened to $1.2321 at 7:03 a.m. in New York, from $1.2345 yesterday. It touched $1.2144 on May 19, the lowest since April 2006. Europe’s currency dropped to 111.19 yen, from 111.39. It slid to 108.84 yen yesterday, the least since November 2001.
The Markit iTraxx Financial Index of 25 banks and insurers fell 5 basis points to 165 and the subordinated index dropped 8 to 252, JPMorgan Chase & Co. prices show.
Credit-default swaps 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. A decline signals improvement in perceptions of credit quality.
A basis point on a credit-default swap contract protecting 10 million euros ($12.3 million) of debt from default for five years is equivalent to 1,000 euros a year.
Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.