Japan Bond Risk Declines to 5 1/2 Year Low, Default Swaps Show

The cost of insuring Japanese corporate bonds from non-payment fell to a 5 1/2 year low, according to traders of credit-default swaps.

The Markit iTraxx Japan index fell 0.5 of a basis point to 66.8 basis points as of 9:20 a.m. in Tokyo, Citigroup Inc. prices show. The measure is poised for its lowest close since May 2008 and set to fall 92.2 basis points in 2013, its biggest yearly drop since 2009, according to data provider CMA.

The Markit iTraxx Australia index declined 1 basis point to 95 as of 11:22 a.m. in Sydney, Australia & New Zealand Banking Group Ltd. prices show. The gauge, which is on track to reach its lowest close since May 2010, is poised to decline 32.5 basis points since Dec. 31, after a 53 basis-point decrease in 2012, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 125 basis points as of 8:50 a.m. in Singapore, Standard Chartered Plc prices show. The benchmark, which has ranged from 99.5 to 177.8 this year, is poised to climb 11.7 basis points in 2013 after a 92.9 basis-point drop in 2012, CMA data show. A basis point is 0.01 percentage point.

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: Foster Wong in Hong Kong at fwong94@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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