Australian Bond Risk Drops, Credit-Default Swap Prices Show

July 18 (Bloomberg) -- The cost of protecting Australian corporate bonds from default declined, according to traders of credit-default swaps.

The Markit iTraxx Australia index dropped 2 basis points to 175 as of 10:52 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. The index was set for its lowest closing level since July 11, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 166 basis points as of 8:36 a.m. in Hong Kong, Credit Agricole SA prices show. The measure has traded between 210 and 132.5 basis points this year, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index was little changed at 179.5 basis points as of 9:32 a.m. in Tokyo, Deutsche Bank AG prices show. The index has declined from this year’s peak of 217 basis points on May 18, CMA prices show.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net