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Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show

The cost of protecting European corporate bonds from default fell, according to traders of credit-default swaps.

Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings dropped 15.5 basis points to 577, 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 signals improved perceptions of credit quality.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 3.25 basis points to 138.5 basis points.

The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers dropped 5 basis points to 212 and the subordinated index was down 10 at 367.5.

A basis point on a credit-default swap protecting 10 million euros ($14.3 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

To contact the reporter on this story: Michael Shanahan in London mshanahan3@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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