By Abigail Moses - Jul 27, 2010 6:47 PM GMT+0800
The cost of insuring against losses on financial bonds fell to the lowest in three months after UBS AG and Deutsche Bank AG posted earnings that beat analyst estimates and regulators softened proposed capital rules.
The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 European banks and insurers fell 7 basis points to 110.5, the lowest since April 21, according to JPMorgan Chase & Co. at 11:30 a.m. The gauge has rallied 22.5 basis points since bank stress tests were released July 23.
UBS, the largest Swiss lender, and Deutsche Bank said they were confident about the future with Germany’s biggest lender forecasting a doubling of pretax profit by 2011. Investor confidence was buoyed after the Basel Committee on Banking Supervision said banks can count deferred tax assets and minority stakes in other financial firms as capital.
“The market now is stress relieved,” said Greg Venizelos, a London-based credit strategist at BNP Paribas SA. “The ‘uncertainty’ risk premium is now being unwound.”
Default swaps on UBS fell 5 basis points to 97.5 and Deutsche Bank declined 6.5 to 98, according to data provider CMA. Contracts on Allied Irish Banks Plc dropped 81.5 basis points to 376, Banco Comercial Portugues SA decreased 29 to 301 and Commerzbank AG fell 10 to 85.5.
The difference between Markit’s financial gauge and the broader European corporate benchmark also shrank to the narrowest since April. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings dropped 3.5 basis points to 101.25, JPMorgan prices show.
Crossover Index
Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings decreased 10 basis points to 467, the lowest level since May 13.
Swaps on BP Plc fell 14.5 basis points to 322.5, CMA prices show. BP appointed U.S.-born Robert Dudley as chief executive officer and pledged to accelerate asset sales to as much as $30 billion after the Gulf of Mexico oil spill led to a record loss.
The cost of insuring against losses on sovereign debt also declined. Swaps on Greek government debt dropped 35.5 basis points to 703, contracts on Spain declined 10 to 179.5, Italy dropped 9 to 140 and Portugal fell 21.5 to 230.
Swaps on Tomkins Plc surged after Canada Pension Plan Investment Board and buyout firm Onex Corp. said they’re borrowing $3 billion to fund the takeover of the British auto- parts maker. Contracts rose 68.5 basis points to 350, the highest level since April 2009.
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. A basis point on a credit-default swap contract protecting 10 million euros ($13 million) of debt from default for five years is equivalent to 1,000 euros a year.
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
From Bloomberg published on Jul 27, 2010 6:47 PM GMT+0800