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Credit Rallies as Europe Debt Risk Falls for 1st Time Since 2009

ECB President Mario Draghi
European Central Bank President Mario Draghi said in July he’d do “whatever it takes” to protect the economic and political bloc from the financial crisis. Photographer: Ralph Orlowski/Bloomberg

Credit markets rallied in Europe before the Christmas holidays, adding to the first annual improvement in debt risk since 2009.

The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies fell three basis points to 459 as of 1:10 p.m. in London, according to prices compiled by Bloomberg. The gauge has tumbled 296 basis points this year to near the lowest level since July 2011.

The European Central Bank’s unprecedented steps to protect the euro and prevent a breakup of the currency union has buoyed credit on the continent since mid-year. ECB President Mario Draghi said in July he’d do “whatever it takes” to protect the economic and political bloc from the financial crisis.

The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies fell one basis points to 112, Bloomberg prices show. The cost of insuring against a default in bank debt using the Markit iTraxx Senior Financial index dropped one basis point to 138, after tumbling on Dec. 20 to the lowest since May 2011.

A basis point on a credit-default swap contract 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.

Techem Energy Metering Service GmbH was among the biggest gainers in the European junk corporate bond market, according to Bank of America Merrill Lynch’s Euro Non-Financial High Yield Constrained Index. Its 325 million euros of 7.875 percent senior subordinated notes due in October 2020, which the Eschborn, Germany-based metering and billing-services company can redeem in 2016, rose 0.85 percent to 111.2 cents on the euro, the index data show.

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