Corporate Bond Risk Increases in Europe, Credit-Default Swap Market Shows
The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 2.5 basis points to 484.5, according to JPMorgan Chase & Co. at 7:30 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a decline indicates improvements in the perception of credit quality.
The Markit iTraxx Europe index of 125 companies with investment-grade ratings increased 0.5 basis point to 107.25, JPMorgan prices show. The cost of insuring financial company debt was little changed with the Markit iTraxx Financial Index of swaps on 25 banks and insurers at 135.5.
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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