Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show
The cost of insuring against default on European corporate debt rose, according to traders of credit- default swaps.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased seven basis points to 745.5 basis points, according to JPMorgan Chase & Co. at 7:30 a.m. in London. An increase signals worsening perceptions of credit quality.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 1.75 at 171 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers added 3.5 basis points to 268 and the subordinated gauge was up nine at 497.
A basis point on a credit-default swap 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.