The cost of insuring against default on European corporate debt rose as Japan’s trade deficit widened and Greece asked for more time to reform its economy.
The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 7.5 basis points to 568.5 at 10:25 a.m. in London, after falling from 752 on May 17. An increase signals deterioration in perceptions of credit quality; a decline, the opposite.
Japan reported a deficit of 517.4 billion yen ($6.5 billion) as shipments to the European Union fell by the most since the crisis started in Greece almost three years ago. Investors pared bets the turmoil will be resolved before Luxembourg Prime Minister Jean-Claude Juncker, the head of the euro group of finance ministers, visits Greece today.
“There’s been quite a sharp tightening of credit of late, so there’s a small reaction the other way,” said Elisabeth Afseth. “Japanese trade data indicated weaker growth on a more global scale and people are waiting for whatever comments come out of Greece.”
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 139 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased four basis points to 231 and the subordinated index climbed seven to 395.
The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments rose three basis points to 231.
A basis point on a credit-default swap protecting 10 million euros ($12.5 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.