Greece Leads Increase in Sovereign Debt Risk on Ratings Concern - Bloomberg

Greece led an increase in the cost of insuring European sovereign debt after Fitch Ratings warned it may cut the nation?s credit rating to junk.

Credit-default swaps on Greece jumped 14.5 basis points to a four-week high of 984, according to data provider CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 2.5 basis points to 202.5, surpassing the Nov. 30 record close.

Greek debt may be downgraded to junk within six weeks after a review of its ?fiscal sustainability,? Fitch said yesterday. Public transport workers in Athens are striking for the fourth day this month to protest wage cuts planned in exchange for the nation?s 110 billion-euro ($144 billion) bailout.

The Fitch review will focus on measures to lower the nation?s budget deficit, the economic outlook and the ?political will and capacity of the Greek state? to push through austerity measures, the firm said in a statement. Greece already has non-investment grade rankings at Moody?s Investors Service and Standard & Poor?s.

Swaps on Portugal climbed 6 basis points to 489, the highest level this month, after Moody?s said yesterday it may also face a downgrade.

Contracts on Ireland increased 5 basis points to 594, Italy rose 4 to 225 and Spain was 7 higher at 347.5. Swaps on Belgium climbed 5 basis points to a record 212 and France was little changed at an all-time high 106 basis points, CMA prices show.

The cost of insuring against corporate bonds fell, with the Markit iTraxx Crossover Index of 50 companies with mostly high- yield credit ratings 3 basis points lower at 437.5 and the Markit iTraxx Europe Index of 125 investment-grade companies down 0.5 at 105, according to JPMorgan Chase & Co.

A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.

Credit-default swaps 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.

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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