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Sovereign Bond Risk Nears Record as Cracks Emerge in Euro Pact

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Dec. 14 (Bloomberg) -- The cost of insuring against default on European sovereign bonds approached a record on concern cracks are emerging in last week’s agreement to resolve the region’s debt crisis.

The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbed three basis points to 382 at 10 a.m. in London, near the record 385 set Nov. 25. An increase signals deterioration in perceptions of credit quality.

German- and French-led plans to amend European Union rules and create closer fiscal union face misgivings from the European Commission and potentially from some the 26 member states that agreed to the changes, the Handelsblatt newspaper said. Italy’s borrowing costs rose at a bond sale today.

“The euro leadership thought they could get away with telling markets what markets want to believe,” said Bill Blain, a strategist at broker Newedge Group in London. “Unfortunately, markets want to see tangible things happen.”

Swaps on Italy rose nine basis points to 578, according to CMA. The government sold five-year bonds at an average yield of 6.47 percent, up from 6.29 percent on Nov. 14, the Bank of Italy said.

Credit-default swaps on Belgium increased six basis points to 333, France climbed 4.5 to 238, Germany was up two at 239 and Spain was three higher at 447, CMA prices show.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers jumped eight basis points to 328 and the subordinated index was 14 higher at 581.5, according to JPMorgan Chase & Co. Both are nearing records set Nov. 25.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 15 basis points to 802.5, JPMorgan prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose three basis points to 187.5 basis points.

A basis point on a credit-default swap protecting 10 million euros ($13 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: Abigail Moses in London at

To contact the editor responsible for this story: Paul Armstrong at

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