Sovereign, Corporate Bond Risk Rises, Credit-Default Swaps Show
The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps.
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed four basis points to 327 at 8:30 a.m. in London. An increase signals deterioration in perceptions of credit quality.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings jumped eight basis points to 571, according to JPMorgan Chase & Co.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.25 basis point to 131.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased four basis points to 207 and the subordinated index climbed seven to 348.
A basis point on a credit-default swap protecting 10 million euros ($13.3 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.
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