Nov. 15 (Bloomberg) -- Italian, Spanish and French credit-default swaps surged to records as Europe’s worsening debt crisis prompts investors to shun the weakest government bonds.
Swaps on Italy jumped 27 basis points to 589 and Spain climbed 23 to 480, according to CMA prices at 4 p.m. in London. France rose 19 basis points to 233 and Belgium increased 21 basis points to a record 344. An increase signals worsening perceptions of credit quality.
Kokusai Global Sovereign Open, Japan’s biggest mutual fund by assets, dumped almost $1 billion of its holdings of Italian government bonds by Nov. 10, a weekly report from the fund shows. Yields on Italian and Spanish 10-year bonds surged as economic growth in Europe failed to accelerate in the third quarter, the European Union’s statistics office said today.
“We now have the possibility of both Italy and Spain calling for help at the same time,” said Bill Blain, the co-head of strategy at broker Newedge Group in London.
The yield on Spain’s 10-year bond rose 21 basis points to 6.32 percent, the highest since August 1997, while the yield on Italian 10-year bonds climbed 35 basis points to 7.05 percent, according to data compiled by Bloomberg. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 19 to 362.5 basis points.
Swaps on Finland rose 5 basis points to 72, the Netherlands increased 15 to 120 basis points, and Austria was up 20 at 222 basis points, according to CMA.
The cost of insuring corporate debt also increased with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rising 28 basis points to 770.5 basis points, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 9 at 189.5 basis points.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 16.5 basis points to 297.5 and the subordinated gauge was 19 higher at 534.
A basis point on a credit-default swap protecting 10 million euros ($13.5 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.
To contact the reporter on this story: David Goodman in London at Dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net