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

The risk of European companies defaulting on their debt fell from a three month high, according to traders of credit-default swaps.

Contracts on the iTraxx Crossover Series 8 Index of 50 European companies with mostly high-risk, high-yield credit ratings decreased 11 basis points to 365 basis points today, according to Deutsche Bank AG. The index, a benchmark for the cost of protecting bonds against default, declines when perceptions of credit quality improve.

The iTraxx Europe index of 125 companies with investment- grade ratings fell 2 basis points to 49.5 basis points, Deutsche Bank prices show.

The CDX North America Investment-Grade Index Series 9 was little changed at 74.5 basis points at the close of trading in New York yesterday, after earlier rising to as much as 79.25 basis points, according to Deutsche Bank.

A basis point on a credit-default swap contract protecting 10 million euros ($14.5 million) of debt from default 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.
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