Sovereign, Corporate Bond Risk Falls, Credit-Default Swaps Show
The cost of insuring against default on European sovereign and corporate debt fell, according to traders of credit-default swaps.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments fell 2.5 basis points to 271.5 at 8 a.m. in London. A decline signals improvement in perceptions of credit quality.
Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 14 basis points to 660, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 2.75 basis points to 140.25 basis points.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers fell seven basis points to 240 and the subordinated index declined 10 to 388.
A basis point on a credit-default swap protecting 10 million euros ($13.1 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.