Japan Bond Risk Drops to 17-Month Low, Credit-Default Swaps Show

The cost of insuring corporate bonds in Japan from non-payment fell to a 17-month low, according to credit-default swap traders.

The Markit iTraxx Japan index decreased five basis points to 134.5 basis points as of 9:19 a.m. in Tokyo, according to Deutsche Bank AG prices. The measure is on course for its lowest close since August 2011, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell one basis point to 109 as of 8:21 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The benchmark has ranged from 102.8 to 110.1 this year, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index increased one basis point to 116 as of 10:36 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. prices. The gauge has fallen 11 basis points this year after a 53 basis-point drop in 2012, according to CMA prices.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Yusuke Miyazawa in Tokyo at ymiyazawa3@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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