Credit Risk Ends Longest Rising Streak Since May 2012 in Europe

The cost of insuring corporate bonds against losses fell by the most in seven months in Europe, ending the longest rising streak since May 2012, as a rally in emerging-market currencies restored investor confidence.

The Markit iTraxx Europe index of credit-default swaps on 125 investment-grade companies fell 5 basis points to 80 basis points at 10:29 a.m. in London, the biggest drop since June 26. Contracts on high-yield debt dropped by the most since Oct. 10, with the Markit iTraxx Crossover index falling 14basis points to 305 basis points.

Concerns that emerging-market turmoil will hurt global growth eased as currencies from Brazil to Turkey strengthened after India raised interest rates while Turkey’s central bank pledged to “use all tools” to meet the nation’s inflation target. Investor confidence was shaken by weaker Chinese manufacturing and the devaluation of Argentina’s peso at a time when the U.S. Federal Reserve is preparing to scale back stimulus.

“There’s a bit of a relief rally going on after some pretty broad-based weakness in emerging markets,” said Graham Neilson, chief investment strategist at Cairn Capital Ltd. in London. “I’m expecting the rally to endure for some days but after that I’d expect more volatility because the problems aren’t just a flash in the pan.”

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

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

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