iTraxx SovX W.Europe index, Irish CDS at record high

LONDON Wed Nov 3, 2010 7:21am EDT

LONDON Nov 3 (Reuters) - The cost of protecting Irish government debt against default jumped to a historic peak on Wednesday as investors fretted about the cost of bailing out its shaky banking system.

Five-year Irish credit default swaps rose 25 basis points on the day to 548 bps, according to CDS prices from data provider Markit, meaning it now costs 548,000 euros to protect against an exposure of 10 million euros of irish government debt.

This pushed the iTraxx SovX index of Western European credit default swap prices rose to a record high of 160.5 bps, 63.5 bps above the iTraxx investment grade credit index ITEEU5Y=GF which was at 97 bps.

"There are several factors coming together, the main one is the EU restructuring agreement that was reached last Friday that allow for a (debt) restructing probably after 2013 so a lot of the market thinking is there will be a restructuring in some of the peripherals in the medium-term," said Gavan Nolan, an analyst at Markit.

"And also with Ireland the whole banking issue, the Anglo Irish debt exchange might be blocked by a group of bondholders."

Ireland also led peripheral bonds yields higher with 10-year yields IE10YT=TWEB rising close to 7.6 percent, pushing the spread over Bunds above 515 bps for the first time. (Reporting by Emelia Sithole-Matarise and Kirsten Donovan)