Company Bond Risk Surges to Record on Argentina Default Concern
By Abigail Moses and Shannon D. Harrington
Oct. 23 (Bloomberg) -- The cost of protecting corporate bonds from default surged to a record on concern Argentina and Pakistan may default, worsening global economic turmoil.
Credit-default swaps on the benchmark Markit iTraxx Crossover Index surged above 800 basis points for the first time, and was trading 22 basis points higher at 813, according to JPMorgan Chase & Co. prices at 2:30 p.m. in London. Contracts on Glencore International AG, the world's largest commodities trader, jumped 248 to a record 1,111, CMA Datavision prices show.
The global slump is driving up the cost of insuring assets from Argentine government bonds to the debt of
ArcelorMittal, the world's largest steel producer. OPEC may cut production for the first time in two years tomorrow as it seeks to staunch a collapse in oil prices.
``This is not just a European problem, or a U.S. problem, this is a global problem,'' said
Puneet Sharma, London-based head of European investment-grade research at Barclays Capital. ``There is an increased probability of default.''
Credit-default swaps on the CDX North America Investment Grade Index of contracts linked to 125 companies in the U.S. and Canada, rose 16 basis points to 220, according to Barclays Capital.
Contracts on
Computer Sciences Corp., the manager of networks for NASA and the U.S. Navy, jumped to a the highest in seven months after the company tapped $1.5 billion of backup credit lines because of ``instability'' in the commercial paper market. Credit-default swaps linked to the Falls Church, Virginia-based company climbed 42 basis points to 145, according to CMA.
WaMu Auction
Dealers in New York are holding an auction to determine the price at which contracts tied to bankrupt Washington Mutual Inc. will be settled. More than 500 banks and investors signed up to adhere to the price, which will determine how much sellers of protection must pay, according to the
International Swaps and Derivatives Association's Web site.
A final price, which typically is announced at about 2 p.m. in New York on auction days, will be posted at www.creditfixings.com.
The prospect of a prolonged global recession is driving up the cost of default protection on producers of raw materials. Credit-default swaps on
ArcelorMittal increased 68 basis points to 674, according to CMA. Contracts on
Xstrata Plc, the world's fourth-largest copper producer, jumped 102 to 675 and
Anglo American Plc, the world's fourth-biggest diversified mining company, rose 92.5 to 450.
The cost to protect debt payments by 14 emerging-market governments from Argentina to Ukraine jumped 200 basis points to 1,088 basis points, according to Credit Derivatives Research LLC prices on the CDX Emerging Markets Index. Credit-default swaps on Japan's benchmark investment-grade index increased 32 basis points to a record 260, Morgan Stanley prices show.
Pension Funds
Argentina's planned takeover of pension funds heightened concern the government is headed for its second default this decade. The probability the country will fail to meet its commitments has soared to 94 percent, according to CMA data. 
Pakistan central bank Governor
Shamshad Akhtar is flying to Dubai today for talks with the International Monetary Fund on a bailout. Hungary, Iceland, the Ukraine and Belarus are also seeking assistance from the IMF to help weather the global financial crisis.
Protection Buyers
``People are seeing economies decelerating everywhere,'' said
Brayan Lai, a credit analyst at Calyon in Hong Kong. ``With fear of defaults from Argentina and Pakistan, everybody is a net protection buyer in the emerging world.''
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. An increase indicates a deterioration in the perception of credit quality; a decline signals the opposite.
The Markit iTraxx Europe index of contracts linked to 125 companies with investment-grade ratings jumped 13.5 basis points to 164.5, JPMorgan prices show.
A basis point on a credit-default swap contract protecting 10 million euros ($12.8 million) of debt from default for five years is equivalent to 1,000 euros a year.
To contact the reporters on this story:
Abigail Moses in London
[email protected];
Last Updated: October 23, 2008 09:39 EDT
se non vengono prese misure internazionali volte a bloccare la moltiplicazione della moneta da parte di strutture che non sono le banche centrali , sara' inutile.....
