Ireland Leads Jump in Sovereign Debt Risk on Bank Funding Woes
Sept. 9 (Bloomberg) -- Julian Callow, chief European economist at Barclays Capital, discusses the outlook for Ireland's economy and sovereign debt risk. Ireland led an increase in the cost of insuring European government bonds from default amid concern the region’s banks will require additional support as the economic recovery slows. Callow talks with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)
Ireland led an increase in the cost of insuring European government bonds from default amid concern the region’s banks will require additional support as the economic recovery slows.
Credit-default swaps on Irish sovereign debt rose 11 basis points to 382, according to data provider CMA. Contracts on Greece, Spain Portugal and Italy also climbed.
Irish Finance Minister Brian Lenihan’s plan for “finality” on the cost of bailing out Anglo Irish Bank Corp. failed to reassure investors the bill won’t escalate. European Central Bank executive board member Juergen Stark said German lenders need more capital, FT Deutschland reported, while the Organization for Economic Cooperation and Development said the recovery is slower than projected.
“Indicators point to a slowdown in the pace of recovery of the world economy that is somewhat more pronounced than previously expected,” Pier Carlo Padoan, the OECD’s chief economist in Paris, said in a report.
Swaps on Greek government debt rose 9 basis points to 905, according to CMA, even as Finance Minister George Papaconstantinou said the nation’s bonds are no longer “something to fear” and that the country is on track to meet its 2010 budget goals.
Contracts on Spain increased 5 basis points to 235, Portugal rose 5 to 330 and swaps linked to Italian government debt climbed 3 basis points to 212, CMA prices show.
Irish Banks
Credit-default swaps tied to Irish banks rose. Contracts protecting Anglo Irish Bank Corp.’s senior debt climbed 3.5 basis points to 799.5, implying a 50 percent chance of default within five years, according to CMA, while Allied Irish Banks Plc increased 12.5 to 496 and Bank of Ireland added 3 to 397.
The cost of insuring European corporate bonds fell, with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declining 10 basis points to 482 at 11 a.m. in London, according to JPMorgan Chase & Co. The Markit iTraxx Europe index of 125 companies with investment- grade ratings dropped 2.75 basis points to 106.
A basis point on a credit-default swap protecting 10 million euros ($12.7 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.
To contact the reporter on this story: Michael Shanahan in London mshanahan3@bloomberg.net
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