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Spain Leads Rise in Sovereign Bond Risk on Bailout Speculation

Spain led an increase in the cost of insuring sovereign bonds amid speculation the indebted nation may seek aid from the European Union and the International Monetary Fund.

Credit-default swaps on Spain jumped 29 basis points to 434, according to CMA prices at 3:30 p.m. in London. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose seven basis points to 367.5. An increase signals deterioration in perceptions of credit quality.

Spanish Prime Minister Mariano Rajoy’s government is considering applying for loans from the EU’s rescue fund and the IMF, Expansion reported, citing unidentified people with knowledge of the matter. The country’s deputy minister for communication, Carmen Martinez Castro, said in a telephone interview that there are no plans to seek external aid.

“There’s stigma attached to having to ask for money,” said Elisabeth Afseth, a fixed-income analyst at Evolution Securities Ltd. in London. “With what we’ve been through in the last few years, there’s always a worry there’s some bad news is hiding somewhere, and taking such a step is admitting the problem won’t be over tomorrow.”

Swaps on Spain are up from 380 basis points so far this year. They peaked at 493 on Nov. 25. The country’s unemployment rate is at 23 percent and the new government this week increased its deficit forecast to 8 percent of gross domestic product from its 6 percent target.

Contracts on Italian government debt jumped 20 basis points to 510, CMA prices show. Contracts on Hungary soared 40 basis points to a record 690 and Austria surged 17 to 212.

Financial Swaps

The cost of insuring against default on financial and corporate debt also rose, according to JPMorgan Chase & Co.

The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers increased 12 basis points to 276.5 and the subordinated index climbed 24 to 512.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 14 basis points to 752.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 4.5 basis points at 173.75.

Swaps on the junior debt of UniCredit Bank AG dropped 35 basis points to 520 after the Italian bank said it will sell new shares in a 7.5 billion-euro ($9.8 billion) offer to strengthen its capital position.

A basis point on a credit-default swap protecting 10 million euros 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.

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