Japan Bond Risk Drops to 5-Year Low, Credit-Default Swaps Show

The cost of insuring corporate bonds against non-payment in Japan fell, poised for its lowest close in five years, according to credit-default swap traders.

The Markit iTraxx Japan index dropped 3 basis points to 71 basis points as of 9:33 a.m. in Tokyo, according to Citigroup Inc. prices. The gauge is set for its biggest one-day decline since May 3 and its lowest close since May 21, 2008, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 3 basis points to 101 basis points as of 8:51 a.m. in Singapore, Royal Bank of Scotland Group Plc prices show. The benchmark is headed for its highest since May 6, according to CMA.

The Markit iTraxx Australia index rose 1.5 basis points to 100.5 as of 9:00 a.m. in Sydney, according to Westpac Banking Corp. prices. The measure is poised for its highest close since May 2, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

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: Katrina Nicholas at knicholas2@bloomberg.net

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