Debt Risk Heads for Biggest Drop in 11 Weeks in Europe After Jobs Report
The cost of insuring against losses on European corporate bonds headed for the biggest weekly decline in almost three months after a report showed U.S. companies added more jobs than forecast.
The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 47 basis points this week to 478, the lowest level since Aug. 9, according to JPMorgan Chase & Co. The contracts were 13 basis points lower at 2 p.m. in London.
Gauges of credit risk rebounded this week as reports showed Europe’s economy expanded at the fastest pace in four years and growth in U.S. and Chinese manufacturing accelerated. Private payrolls in the U.S. that exclude government agencies rose by 67,000 after a revised 107,000 increase in July, Labor Department figures showed.
“The data over the last few days has been supportive and dispelled the notion there will be a double dip,” said Suki Mann, a credit strategist at Societe Generale SA in London.
The median estimate of economists surveyed by Bloomberg News called for a private payroll gain of 40,000. Total employment fell 54,000 for a second month and the unemployment rate rose to 9.6 percent as more people entered the labor force.
iTraxx Europe
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 2.75 basis points today and 11.75 basis points this week to 105.75, JPMorgan prices show.
The cost of protecting bank bonds from default is headed for the first decline in five weeks, with the Markit iTraxx Financial Index of 25 banks and insurers falling 20 basis points to 126.5. The index is 6.5 basis points lower today.
Credit-default swaps linked to the senior debt of Anglo Irish Bank Corp. jumped 54.5 basis points to 687, according to data provider CMA, the highest level since July 2009. Contracts insuring 10 million euros ($12.8 million) of the bank’s junior bonds for five years rose 230,000 euros to 2.68 million euros in advance and 500,000 euros annually.
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 basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
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