Peripheral, banking credit default swaps rise

LONDON Fri Nov 26, 2010 4:58am EST

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LONDON Nov 26 (Reuters) - The cost of insuring against a default by peripheral euro zone countries rose on Friday as fears grew that further bailouts would be necessary. Portuguese five-year credit default swaps were 20 basis points higher at 500 bps, according to monitor Markit, after the Financial Times Deutschland reported that the majority of euro zone nations and the European Central Bank are urging Portugal to apply for a financial bailout from a European rescue fund [ID:nLDE6AP08Y]. Spanish CDS widened 9 bps to 312 bps, meaning it costs 312,000 euros to insure 10 million euros of exposure.

"Risk aversion is permeating the market amid uncertainty over the fate of the peripheral euro zone countries," said Markit analyst Gavan Nolan.

The iTraxx senior financials index of credit default swaps on banks widened 12 bps after after the Irish Times reported officials at the International Monetary Fund and in the European Union are examining how senior bondholders could be compelled to pay some of the costs of rescuing Ireland's banks.

"This news, if true, is very negative for all peripheral banks as their senior debt would no longer be considered a safe haven," BNP Paribas credit strategists said in a note.

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