June 22, 2010, 8:09 AM EDT
By Abigail Moses
June 22 (Bloomberg) -- The cost of insuring against losses on European corporate bonds rose amid renewed concern that some of the region’s banks will struggle to fund themselves and after France’s largest lender was downgraded.
The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies climbed from a six-week low, rising 16.6 basis points to 518.67, according to Markit Group Ltd. prices at 12:33 p.m. in London. The index, a benchmark for the cost of protecting bonds against default, had fallen nine straight days from 633 on June 8.
The cost of protecting bank bonds rose after Fitch Ratings cut its ranking on BNP Paribas SA one step, citing deterioration in the bank’s asset quality, while Standard & Poor’s said Spain’s lenders face mounting credit losses. Sentiment had worsened after European Central Bank member Christian Noyer said yesterday that some banks face funding difficulties in the wake of Europe’s sovereign debt crisis.
The Markit iTraxx Financial Index tied to the senior debt of 25 banks and insurers rose 6 basis points to 152 and the subordinated index was 10 basis points higher at 232, according to JPMorgan Chase & Co. Contracts on BNP Paribas rose 3 basis points to 105, CMA DataVision prices show. Banco Santander SA, Spain’s biggest lender, increased basis 10 points to 170 and Banco Bilbao Vizcaya Argentaria SA climbed 13 basis points to 226.
BNP Paribas’s long-term credit rating was lowered to AA-, the fourth-highest investment grade, Fitch said yesterday. Both Moody’s Investors Service and S&P rank it one step higher.
Europe Index
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 3.8 basis points to 116.5, Markit data show.
Credit swaps on U.K. government debt were little changed at 79.5 basis points as Chancellor of the Exchequer George Osborne stood before lawmakers to deliver the new coalition government’s emergency budget.
A basis point on a credit-default swap contract protecting 10 million euros ($12.3 million) of debt from default for five years is equivalent to 1,000 euros a year.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase signals deterioration in perceptions of credit quality.
--With assistance from Kate Haywood in London. Editors: Andrew Reierson, Paul Armstrong
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
From Bloomberg Businessweek published on June 22, 2010, 8:09 AM EDT