Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show

The risk of owning European corporate bonds rose, according to traders of credit-default swaps.

Contracts on the iTraxx Crossover Series 8 Index of 50 European companies with mainly high-risk, high-yield credit ratings increased 5 basis points to 396 basis points today, according to Deutsche Bank AG. The index, a benchmark for the cost of protecting bonds against default, rises when perceptions of credit quality deteriorate.

Contracts on the iTraxx Europe Index of 125 companies with investment-grade debt rose 1.5 basis points to 59 basis points, Deutsche Bank prices show.

A basis point on a credit-default swap contract protecting 10 million euros ($14.8 million) of debt for five years is equivalent to 1,000 euros a year.

Credit-default swaps, contracts conceived to protect bondholders against default, 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.
milliondollarsfinance.com