Bank Swaps Show Stress Fears Ebb as Bonds Rally: Credit Markets

Bond investors are gaining confidence in the ability of banks to ride out Europe’s government deficit crisis, driving the difference in the cost of insuring financial and corporate debt from default to near the lowest in three months.

The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers from Banco Santander SA in Spain to Germany’s Deutsche Bank AG fell more than 25 basis points last week, the most in two months. The bank swaps index pared that decline today, though it’s still just 19 basis points wider than the Markit iTraxx Europe Index of corporates, down from a record 55 basis points on June 4.