Credit Risk Declines to Lowest in Four Years on Draghi Stimulus

Corporate credit risk fell to the lowest in more than four years in Europe as policy makers’ plans for more economic stimulus pushed borrowing costs down to a record.

The cost of insuring against losses on company debt dropped, with the Markit iTraxx Europe index of credit-default swaps on 125 companies with investment-grade ratings declining one basis point to 65 basis points at 8:02 a.m. in London. Contracts on an index of junk-rated bonds approached the lowest since July 2007.

European Central Bank President Mario Draghi signaled last week there would be fresh monetary stimulus in June, and another interest-rate cut may top the list of options. Average yields on investment-grade corporate bonds dropped to an all-time low of 1.7 percent, according to Bank of America Merrill Lynch index data.

“There are a lot of expectations that the ECB will act,” said Harpreet Parhar, a London-based strategist at Credit Agricole SA. “Whatever they do it will take us one step closer to quantitative easing. The tone of the market is positive.”

To contact the reporter on this story: Jennifer Joan Lee in London at jlee176@bloomberg.net

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

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