Italy, Spain lead increase in European sovereign credit risk
MADRID: Italy and Spain led an increase in the cost of insuring bonds sold by Europe's peripheral nations as divisions emerged over how best to limit contagion from the region's budget deficit crisis.
Credit-default swaps on Italy rose 10 basis points to 219 while Spain increased 10.5 basis points to 307.5, according to data provider CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 6.25 basis points to 183. European Union officials are at odds over whether to increase the 750 billion-euro ($1 trillion) bailout fund as they meet in Brussels today. Divisions appeared last week when a plan to buy government bonds only won support from an "overwhelming majority" of member states and an extension of liquidity measures was endorsed by "consensus," according to European Central Bank President Jean-Claude Trichet. "Both underscore the political controversy in Europe regarding these measures," Maureen Schuller, a credit strategist at ING Groep NV in Amsterdam, wrote in a note to investors. "This, in our opinion, will remain the single most important source of credit market volatility." Swaps on Ireland were 13.5 basis points higher at 556 and Portugal was up 10 to 438, according to CMA. Sovereign concerns also undermined investor perceptions of financial creditworthiness with contracts on Spain's biggest lenders leading an increase in bank bond risk. -PB News