By Abigail Moses
Dec. 2 (Bloomberg) -- The cost of insuring against losses on European bank debt fell for a second day, dropping by the most since July, on speculation the European Central Bank will boost government bond purchases when it meets today.
The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 banks and insurers fell 13.5 basis points to 151.5 and the subordinated index was 17 lower at 278.5. The junior benchmark reached a 20-month high on Nov. 30 after a bailout of Ireland failed to reassure investors the region?s debt crisis will be contained.
Pressure is increasing on ECB President Jean-Claude Trichet to step up his response to the crisis that?s raising funding costs for the region?s governments and banks. Bonds, stocks and the euro rallied yesterday as markets interpreted a comment from Trichet as a signal policy makers may act.
?The market will look for a significant increase in asset purchases, the scale of which may have to match or exceed expected 2011 issuance by peripheral countries to impress,? Gary Jenkins, a credit strategist at Evolution Securities in London, wrote in a note to investors. ?Spain and Italy combined need to raise close to 500 billion euros next year.?
Credit-default swaps on Italy dropped 15.5 basis points to 209.5 and Spain declined 13 to 299, according to data provider CMA. Contracts on Portugal decreased 22.5 to 455, Ireland fell 20 to 548 and Greece was 3.5 lower at 928.5. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 0.5 basis point to 186.5.
Corporate Swaps
The cost of insuring corporate bonds also declined, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings down 16 basis points at 489, according to JPMorgan Chase & Co.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 4.75 basis points to 108.5, JPMorgan prices show.
A basis point on a credit-default swap contract protecting 10 million euros ($13.1 million) of debt from default for five years is equivalent to 1,000 euros a year. 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.
--Editors: Michael Shanahan, Cecile Gutscher
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
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