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By Yoruk Bahceli
LONDON, March 9 (Reuters) - Debt insurance costs on junk-rated European companies surged on Monday to near seven-year highs, as measured by a credit derivatives index used as a barometer of sentiment on European corporate debt, as the coronavirus spread and the oil price plunged 30%.
The iTraxx European Crossover index of credit default swaps, which measures the cost of insuring exposure to a basket of sub-investment-grade European companies, rose to as high as 507 basis points on Monday, its highest level since June 2013, according to Refinitiv Eikon data.
It then eased to 493 bps, still up 114 basis points since Friday’s close, in its biggest one-day jump since at least the financial crisis.
“At the moment, it’s a very bleak picture. You can also see in credit that people have been rushing to the synthetics (derivatives) to hedge their trades,” said Cem Keltek, a credit strategist at Commerzbank in Frankfurt.
“Overall, the risk-on case of the last couple of years is partially unwinding.”
On Friday, the index had already surged to four-year highs, closing that session at 376 bps.
In recent years, low interest rates and the European Central Bank’s bond purchases have dampened yields on investment-grade bonds and pushed investors into high-yield credit, a market that was in high demand until a few weeks ago.
Indexes for insuring European financial debt also jumped on Monday, to their highest levels since June 2016. The index for senior financial debt spiked to as high as 134 bps, , while the index for subordinated financial debt rose to as high as 268 bps .
Reporting by Yoruk Bahceli Editing by Tommy Reggiori Wilkes and Kevin Liffey