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Sovereign Bond Risk Soars as Greece Plan Rebuffed, Aid Withheld

Feb. 10 (Bloomberg) -- The cost of insuring European sovereign debt soared after finance ministers rebuffed a Greek austerity plan being demanded in exchange for a 130 billion-euro ($173 billion) rescue package.

The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments climbed nine basis points to 331 at 1 p.m. in London. The gauge is headed for the first weekly increase in five weeks, signaling deterioration in perceptions of credit quality.

Resolution of the aid talks, which have dragged on since July, is needed for Greece to avoid defaulting next month. The nation must pass its latest austerity package into law and identify 325 million euros in extra spending cuts before euro-area governments endorse a second bailout for the country, Luxembourg Prime Minister Jean-Claude Juncker said.

“Time is obviously running out for Greece,” said Harpreet Parhar, a strategist at Credit Agricole SA in London.

A leader of Greece’s coalition government today pushed back against German demands for deeper budget cuts as the price of the bailout needed to stave off a financial collapse.

George Karatzaferis, the leader of one of the three parties supporting interim Prime Minister Lucas Papademos, said he wouldn’t support austerity measures worked out for a rescue. Karatzaferis, who heads the Laos party, spoke in Athens hours after German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece was missing debt-cutting targets.

Italy Swaps

Swaps on Italy surged 24 basis points to 394 and Spain jumped 20 to 368, according to BNP Paribas SA. Contracts on Austria climbed 14 to 170, France rose 10 to 174 and Belgium increased seven to 213.

The cost of insuring corporate debt also surged with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings jumping 32 basis points to 599.5, heading for the first weekly increase since Dec. 16, according to JPMorgan Chase & Co.

The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 5.75 basis points to 135.75 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 14 basis points to 219 and the subordinated index climbed 25 to 362.

A basis point on a credit-default swap protecting 10 million euros ($13.2 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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