Asia-Pacific Default Risk Rises to Five-Week High, Swaps Show
The cost to protect Asia-Pacific corporate and government bonds from default rose to the highest in five weeks, credit-default swaps show.
The Markit iTraxx Australia Index advanced 8 basis points to 156 at 9:40 a.m. in Sydney, Citigroup Inc. prices show. Contracts on Japan's benchmark measure of credit risk climbed 7 to 142, according to Morgan Stanley. The swaps, which rise as perceptions of credit quality deteriorate, are both at the highest since July 16, according to data compiled by Bloomberg.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, including the Thai government and Hong Kong conglomerate Hutchison Whampoa Ltd., rose 6 basis points to 155, ICAP Plc prices show. The region's benchmark of 20 high-risk, high-yield borrowers outside Japan, climbed 19 to 561.5.
The indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality payday loans. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
Credit-default swaps on Macquarie Group Ltd., Australia's biggest securities firm, posted the biggest increases among the nation's financial companies, Citigroup data show. Contracts on the Macquarie's subordinated debt rose 25 basis points to 345 and protection costs on the senior debt climbed 15 to 235.
Subordinated bonds are less likely to be repaid in a bankruptcy than the senior notes, which rank higher in the payment order.
Credit-default swaps are used to protect against or speculate on default. They pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.