Australian Bond Market

Australia, Japan Bond Risk Rises, Credit-Default Swaps Show

The cost of insuring corporate and sovereign bonds in Japan and Australia from non-payment increased, according to traders of credit-default swaps.

Bloomberg,

17 July, 2012

The Markit iTraxx Australia index climbed 2 basis points to 178.5 basis points as of 10:52 a.m. in Sydney, Westpac Banking Corp.’s prices show. The gauge is set for its highest close since July 10, according to data provider CMA.

The Markit iTraxx Japan index added 1.5 basis points from its close last week to 178 as of 9:39 a.m. in Tokyo, Citigroup Inc. prices show. The index is headed for its highest level since July 9, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The country’s markets were closed yesterday for a national holiday.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was little changed at 166 basis points as of 8:49 a.m. in Hong Kong, Royal Bank of Scotland Group Plc prices show. The gauge has ranged between 161.5 basis points and 173.5 basis points this month.

Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point.