January 17, 2012, 11:14 AM EST
Article from Bloomberg
By Namitha Jagadeesh and Abigail Moses
Jan. 17 (Bloomberg) -- The cost of insuring against default on European corporate debt fell to the lowest in more than two months as investors pared bets the region’s crisis is deepening as Spain’s borrowing costs declined.
The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings dropped 2.75 basis points to 164.5, the lowest since Oct. 31, according to JPMorgan Chase & Co. at 3:30 p.m. in London. A decline signals improved perceptions of credit quality.
Spanish borrowing costs dropped and demand for the nation’s debt increased at the first auction since its credit rating was cut by Standard & Poor’s on Jan. 13. Investors shrugged off rating downgrades of eight other governments and the region’s temporary bailout fund as China’s slowest economic growth in more than two years boosted expectations for easier monetary policy.
“Spain had a fairly decent auction, but it started before that,” said Elisabeth Afseth, an analyst at Evolution Securities Ltd. in London. “Spain is probably getting down to slightly more affordable levels.”
The European Financial Stability Facility, designed to fund rescue packages for Greece, Ireland and Portugal, was stripped of its AAA credit rating by Standard & Poor’s yesterday after two of its sponsoring nations -- France and Austria -- lost their top grades on Jan. 13.
Spain, Austria
Contracts on Spain dropped 10 basis points to 412, while Italy fell 21 basis points to 500, according to CMA prices. Austria fell nine basis points to 206 while the Netherlands declined seven basis points to 116.
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped seven basis points to 359. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high- yield credit ratings fell 12.5 basis points to 699, the lowest since Nov. 3.
Market ‘Wobbly’
“The New-Year rally wasn’t derailed by the ratings news,” said Roger Francis, an analyst at Mizuho International Plc in London. “The market was a bit wobbly yesterday morning, but gathered its composure and moved on.”
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers declined 7.5 basis points to 258.5 and the subordinated gauge fell 11 basis points to 469.
A basis point on a credit-default swap protecting 10 million euros ($12.8 million) of debt from default for five years is equivalent to 1,000 euros 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.
--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
Article from Bloomberg