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Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show

Dec. 1 (Bloomberg) -- The cost of insuring against losses on European corporate bonds fell, according to traders of credit-default swaps.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 7.5 basis points to 518.5, according to JPMorgan Chase & Co. at 7:30 a.m. in London. The index is a benchmark for the cost of protecting bonds against default and a decline signals improved perceptions of credit quality.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 1.5 basis points to 116, JPMorgan prices show. The cost of protecting bank bonds from default also declined, with the Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers down 4.5 at 167 and the subordinated index 6.5 lower at 305.

A basis point on a credit-default swap contract protecting 10 million euros ($13 million) of debt from default for five years is equivalent to 1,000 euros a year.

Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

To contact the reporter on this story: Michael Shanahan in London mshanahan3@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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