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U.S. Markets

European corporate CDS indexes jump on composition change

(Reuters) - Indexes measuring the cost of insuring against European corporate defaults jumped on Monday, when new versions of the indexes based on a different composition of companies started trading following a regular roll-over.

Markit’s iTraxx Europe index, which measures the cost of insuring against an underlying basket of investment-grade rated European corporate bonds, jumped as much as 8 basis points on Friday’s close to 56 basis points, its highest since November 2020.

The iTraxx Europe crossover index, which measures the cost of insuring against an underlying basket of sub-investment grade corporate bonds, rose to 276 bps, up 30 bps since Friday and the highest since late January.

Analysts at Commerzbank noted that the main change in the indexes, which roll twice a year, was driven by companies seeing ratings upgrades.

While five of the six new names joining the investment-grade index were previously part of the junk index, six of 10 changes to the junk index saw upgrades out of the index, and those issuers were replaced by companies with illiquid bonds, according to Commerzbank, which wrote that it expected the spread on both indexes to rise.

Reporting by Yoruk Bahceli; editing by Thyagaraju Adinarayan

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