July 14, 2010, 4:59 AM EDT
July 14 (Bloomberg) -- The cost of insuring against losses on European corporate bonds fell to the lowest level in two months after record sales and earnings forecasts from Intel Corp. helped fuel bets the economic recovery is on track.
The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings dropped 3.25 basis points to 112, the lowest since May 12, JPMorgan Chase & Co. prices show.
The world’s biggest chipmaker said it expects to profit as companies resume spending on technology after cutting back during the recession. Investors were also buoyed by Greece’s ability to raise funds in the international capital markets yesterday for the first time since being bailed out by the European Union and International Monetary Fund in May.
“Intel results blew the gasket off, Greece placed its six- month paper successfully and cash remains keen to invest in credit,” said Greg Venizelos, a London-based analyst at BNP Paribas SA. “Credit spreads keep marching tighter.”
Credit-default swaps on Greece declined 27 basis points to 784, the lowest level in a month, according to data provider CMA. Contracts on Portugal dropped 6.5 basis points to 272.5 and Spain fell 1 to 207.
Intel said third-quarter sales will be $11.6 billion, exceeding analyst estimates of $10.9 billion in a Bloomberg survey. The company, whose processors run more than 80 percent of the world’s personal computers, said its gross profit margin will reach 66 percent this year.
Investor Confidence
Investor confidence may be tested later today as a report may show sales at U.S. retailers fell in June for a second month. The Commerce Department data is due at 8:30 a.m. in Washington and economists’ estimates range from a decline of 0.8 percent to a 0.5 percent gain.
The cost of protecting European bank bonds from default fell on speculation results of stress tests due next week will reassure investors about their resilience to potential losses. The Markit iTraxx Financial Index of 25 banks and insurers dropped 4 basis points to 128, the lowest since May 18, and the subordinated index was 5 lower at 199.
The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declined 13 basis points to 505, the lowest since June 21, JPMorgan prices show.
A basis point on a credit-default swap protecting 10 million euros ($12.7 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 borrower fail to adhere to its debt agreements. A decrease signals improvement in perceptions of credit quality.
--Editors: Michael Shanahan, 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 July 14, 2010, 4:59 AM EDT