Default Swaps Beat Bonds in Highlighting EU Stress: Euro Credit

Credit-default swaps are a better gauge of euro-region creditworthiness than bonds as the European Central Bank’s 74 billion euros ($98 billion) of debt purchases make investors skeptical about what is driving spreads narrower.

The cost of insuring Portuguese debt against default surged to a record on Jan. 10 on speculation that Germany and France would force the country to seek aid. By contrast, the yield spread between 10-year Portuguese debt and German bonds shrank by the most in a month. Credit-default swaps on Irish debt are 3 percent more expensive than before the nation accepted a bailout in November, while the yield premium investors demand to own its 10-year securities instead of similar-maturity German debt has declined by 12 percent.