Related News:
Bank Risk Headed for Record Monthly Decline in Europe Amid Stress Relief
The cost of insuring against losses on European bank bonds fell, heading for a record monthly decline, according to traders of credit-default swaps.
The Markit iTraxx Financial Index of swaps linked to 25 banks and insurers decreased 2 basis points to 113.5, according to JPMorgan Chase & Co. at 4:02 p.m. in London. The gauge is down 51.5 basis points this month and near the lowest level since April 21.
The European Union’s bank stress tests and a softening of proposed capital and liquidity rules by the Basel Committee on Banking Supervision reassured bondholders that lenders can withstand an economic slowdown. The extra yield investors demand to hold financial notes over government debt fell 13 basis points to 220 since the results were released July 23, Bank of America Merrill Lynch data show.
“The recent stress tests might help alleviate concerns over European banks’ capital positions,” Gary Jenkins, head of credit strategy at Evolution Securities Ltd. in London wrote in a note to investors. The key is now “whether banks will be able to consistently access market funding at terms which allow them to make a meaningful contribution to a fully functioning economy,” he wrote.
Lenders are rushing to sell bonds in euros to take advantage of the improvement in risk appetite, with Bank of America Corp. issuing 2 billion euros ($2.6 billion) of seven- year notes and Banco Santander SA completing a 1.5 billion-euro four-year deal today.
European Confidence
Sentiment was boosted as European confidence in the economic outlook rose to the highest in more than two years in July and German unemployment declined for a 13th straight month as an export-led recovery gathers strength. French Finance Minister Christine Lagarde predicted a “serious” acceleration in the global expansion next year.
The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings fell 3.25 basis points to 102.75, the lowest since May 14, JPMorgan prices show. That’s more than 28 basis points tighter this month, the biggest decline since April 2009.
Contracts on the Markit iTraxx Crossover Index of swaps on 50 companies with mostly high-yield credit ratings fell 15 basis points to 470, the lowest since May, and are down 115.5 basis points so far this month, the biggest decline since December.
A basis point on a credit-default swap protecting 10 million euros ($13 million) of debt from default for five years is equivalent to 1,000 euros a year.
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.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
Rate These Stories
Rate this Page