The cost of insuring against default on European corporate and sovereign debt fell, according to traders of credit-default swaps.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 16.5 basis points to 712, according to JPMorgan Chase & Co. at 11 a.m. in London. A decline signals improving perceptions of credit quality.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 3.75 basis points to 172 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 4.5 basis points to 248 and the subordinated index fell eight to 465.
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell three basis points to 323. Contracts on Spain fell 10 basis points to 385, those on Italy declined five basis points to 507, and insurance on Portugal’s debt dropped four basis points to 1046. Swaps protecting Ireland rose seven basis points to 722.
A basis point on a credit-default swap protecting 10 million euros ($13.8 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.