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Ireland Swaps Surge to Record on Anglo Irish Bailout Cost Wager
September 28, 2010, 9:04 AM EDT More From Businessweek
By Abigail Moses
Sept. 28 (Bloomberg) -- The cost of insuring against default on Ireland’s government debt surged to a record as Standard & Poor’s said the cost of bailing out nationalized lender Anglo Irish Bank Corp. could exceed $47 billion.
Credit-default swaps tied to Irish bonds jumped as much as 30.5 basis points to 521.5 after more than doubling in the past two months, and were at 496 basis points as of 1:40 p.m. in London, according to data provider CMA. Contracts on Anglo Irish rose 1.5 basis points to 937.5, implying a 56 percent probability of default within five years, after earlier climbing to an all-time high of 960.5.
European countries are struggling to repair their finances and prevent a collapse of their banking systems after a sovereign debt crisis that has roiled markets. Investors are speculating the ballooning cost of rescuing Dublin-based Anglo Irish will force the nation’s government to choose between fully repaying senior bondholders and tackling the region’s biggest budget deficit.
“It’s a key test for the market,” said Greg Venizelos, a credit strategist at BNP Paribas SA in London. “The cost of the Anglo Irish bailout is too high for Ireland to afford without jeopardizing its fiscal position.”
The speculation about Ireland weighed on sentiment in the region, driving up credit-default swaps on other governments and banks. The Markit iTraxx SovX Western Europe Index of default swaps on 15 governments rose 3.5 basis points to 163.5, according to CMA.
Sovereign Swaps
Credit-default swaps on Portugal increased 11 basis points to 441.5, close to May 6’s record-high closing price of 461, while Greece climbed 7 basis points to 823 and Italy was up 4.5 basis points at 201, CMA prices show. Spain added 7.5 basis points to 235. The yield on Ireland’s two-year government note rose as much as 46 basis points to 4.70 percent, Bloomberg generic data show.
Irish two-year government notes slumped, sending yields to the highest level since Bloomberg began collating the data in 2003.
Credit-default swaps on financial-company debt rose, with the Markit iTraxx Financial Index of 25 banks and insurers rising 3 basis points to 149 and an index of their riskier subordinated debt climbing 2.5 basis points to 219, according to JPMorgan Chase & Co.
Gauges of corporate risk also rose. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated European companies climbed 7.1 basis points to 523, according to Markit Group Ltd.
Bailout Bill
Anglo Irish’s bailout may cost Ireland’s government more than 35 billion euros ($47 billion), Standard & Poor’s credit analyst Trevor Cullinan said on Dublin’s RTE Radio today, exceeding the rating company’s previous estimate.
Ireland’s government is due to announce the final bill this week. The bank has already cost the country 22.9 billion euros. Moody’s Investors Service lowered its rating yesterday on the senior unguaranteed securities of the Dublin-based lender.
Credit-default 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, and an increase signals a deterioration in investor perceptions of credit quality.
A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
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Chissà dove andranno a prendere i 35 MLD di euro (se poi basteranno ...).
September 28, 2010, 9:04 AM EDT More From Businessweek
By Abigail Moses
Sept. 28 (Bloomberg) -- The cost of insuring against default on Ireland’s government debt surged to a record as Standard & Poor’s said the cost of bailing out nationalized lender Anglo Irish Bank Corp. could exceed $47 billion.
Credit-default swaps tied to Irish bonds jumped as much as 30.5 basis points to 521.5 after more than doubling in the past two months, and were at 496 basis points as of 1:40 p.m. in London, according to data provider CMA. Contracts on Anglo Irish rose 1.5 basis points to 937.5, implying a 56 percent probability of default within five years, after earlier climbing to an all-time high of 960.5.
European countries are struggling to repair their finances and prevent a collapse of their banking systems after a sovereign debt crisis that has roiled markets. Investors are speculating the ballooning cost of rescuing Dublin-based Anglo Irish will force the nation’s government to choose between fully repaying senior bondholders and tackling the region’s biggest budget deficit.
“It’s a key test for the market,” said Greg Venizelos, a credit strategist at BNP Paribas SA in London. “The cost of the Anglo Irish bailout is too high for Ireland to afford without jeopardizing its fiscal position.”
The speculation about Ireland weighed on sentiment in the region, driving up credit-default swaps on other governments and banks. The Markit iTraxx SovX Western Europe Index of default swaps on 15 governments rose 3.5 basis points to 163.5, according to CMA.
Sovereign Swaps
Credit-default swaps on Portugal increased 11 basis points to 441.5, close to May 6’s record-high closing price of 461, while Greece climbed 7 basis points to 823 and Italy was up 4.5 basis points at 201, CMA prices show. Spain added 7.5 basis points to 235. The yield on Ireland’s two-year government note rose as much as 46 basis points to 4.70 percent, Bloomberg generic data show.
Irish two-year government notes slumped, sending yields to the highest level since Bloomberg began collating the data in 2003.
Credit-default swaps on financial-company debt rose, with the Markit iTraxx Financial Index of 25 banks and insurers rising 3 basis points to 149 and an index of their riskier subordinated debt climbing 2.5 basis points to 219, according to JPMorgan Chase & Co.
Gauges of corporate risk also rose. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated European companies climbed 7.1 basis points to 523, according to Markit Group Ltd.
Bailout Bill
Anglo Irish’s bailout may cost Ireland’s government more than 35 billion euros ($47 billion), Standard & Poor’s credit analyst Trevor Cullinan said on Dublin’s RTE Radio today, exceeding the rating company’s previous estimate.
Ireland’s government is due to announce the final bill this week. The bank has already cost the country 22.9 billion euros. Moody’s Investors Service lowered its rating yesterday on the senior unguaranteed securities of the Dublin-based lender.
Credit-default 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, and an increase signals a deterioration in investor perceptions of credit quality.
A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
***
Chissà dove andranno a prendere i 35 MLD di euro (se poi basteranno ...).