Corporate Credit-Default Swap Indexes Rolling Into New Series

  • High-yield benchmark in Europe falls 11 basis points to 298
  • Investment-grade gauge in Europe unchanged at 71 basis points

The latest series of benchmarks measuring the cost of insuring corporate debt against default started trading today.

Gauges of credit-default swaps on companies in Europe, Asia and Australia rolled into their 25th series. The 26th version of the Markit CDX North America Investment-Grade Index also opens today and its high-yield measure starts trading on March 28. The 25th series of the Markit iTraxx Japan starts trading on Tuesday.

The Markit iTraxx Crossover Index linked to 75 companies with mostly junk ratings cost 298 basis points at 11:35 a.m. in London. That’s the lowest since December and compares with 309 basis points for the previous series at the close of trading on Friday, according to data compiled by Bloomberg.

Twelve companies were replaced in the high-yield benchmark, with Anglo American Plc, Casino Guichard Perrachon SA and Repsol SA migrating from the investment-grade measure. Grupo Isolux Corsan Finance BV and Portugal Telecom International Finance BV were removed because the cost of insuring their debt was too high.

“With Isolux and Portel leaving the index, the portfolio will look of a better quality, despite the new fallen angels entering,” Ioannis Angelakis, a credit derivatives strategist at Bank of America Corp. in London, wrote in a note to clients before the roll. “These names trade significantly tighter than” those that are leaving.

New Benchmarks

New benchmarks are created every six months when companies are added or dropped depending on their ratings, cost of protection and ease of trading. Four companies changed in Europe’s investment-grade benchmark and members of the financial gauges didn’t change.

The Markit iTraxx Europe index linked to 125 companies with investment-grade ratings was unchanged at 71 basis points. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 30 banks and insurers was at 89 basis points, compared with 80 basis points on Friday, and the subordinated index was at 199 basis points from 191 basis points.

Two measures of default risk on central and eastern European debt, the Markit iTraxx CEEMEA index and the Markit iTraxx SovX CEEMEA Ex-EU index, will not roll into new series because of low trading activity.

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