Portugal Credit-Default Swaps Tumble as Election Concerns Abate

The cost of insuring Portugal’s sovereign debt fell to the lowest in three weeks after President Anibal Cavaco Silva ruled out elections that could have disrupted the completion of the nation’s bailout plan.

Credit-default swaps linked to the country’s bonds dropped 47 basis points to 454 at 12:13 p.m. in London, the biggest decline since Nov. 21.

Cavaco Silva said yesterday that Prime Minister Pedro Passos Coelho’s government would stay in office until its term ends in 2015. A fallout between Portugal’s three main parties over how to meet the terms of a European Union-led bailout sparked concern that an election could derail the plan.

A basis point on a credit-default swap protecting $10 million of debt from default for five years is equivalent to $1,000 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.

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