By Ben Edwards
The cost of buying protection against a Spanish and Italian default
pushed higher in early trading Wednesday as concerns about their
ability to survive the euro-zone debt crisis continues to weigh on
sentiment.
At around 0745 GMT, five-year credit default swaps on Spain widened
seven basis points to 578 basis points, according to data-provider
Markit. Five-year CDS on Italy widened 10 basis points to 518 basis
points.
CDS are derivatives that function like an insurance contract for debt.
If a borrower defaults, sellers compensate buyers.
The mood in Spain soured again after a leaked document outlining the
draft terms of the country's bank bailout indicated that holders of
hybrid and subordinated Spanish bank debt will be forced to take
losses on their investments.
It comes after euro-zone leaders agreed to release as much as 30
million euros ($36.9 million) to Spain by the end of July as part of
an aid package to shore up the country's stricken banking sector. Last
month, officials agreed to lend Spain up to EUR100 billion to prop up
its banking system, though the country is unlikely to submit its final
request for funds until an audit of its banks is completed in
September.
Italian CDS also came under pressure Wednesday after the country's
Prime Minister Mario Monti hinted that Italy could ask euro-zone
governments to allow the region's bailout fund to buy up Italian debt.
Elsewhere, the cost of insuring Irish debt also crept higher, with its
five-year CDS seven basis points wider at 545 basis points.
The widening theme also hit the region's largest economy, with Germany
out one basis point to 98 basis points.
Write to Ben Edwards at ben.edwards@dowjones.com
(END) Dow Jones Newswires
July 11, 2012 04:00 ET (08:00 GMT)
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