Ireland Experiences Increase in Sovereign Default Swaps on Rising Bailout Costs


Ireland Experiences Increase in Sovereign Default Swaps on Rising Bailout Costs

On growing concern over the surging bailout bills for the recovery of the banking system, the insurance cost against default on European Government debt increased, which has reached to significant levels in Ireland.

As per CMA, there was an advancement of 30.5 basis points in the credit-default swaps tied to Irish bonds, bringing it to a record high of 519, increasing two-folds in the past two months. The Markit iTraxx SovX Western Europe Index of default swaps on 15 Governments surged 3.5 basis points to 163.5.

Credit-default swaps on Portugal went up 12.5 basis points to 442.5, while that on Greece jumped up 20 basis points to 833. Credit-default swaps on Italy raised 4.5 basis points at 201. The Ireland's two-year Government note witnessed a yield of 46 basis point higher to 4.70%.

The total bailout cost for Anglo Irish Bank Corp. could go beyond 35 billion Euros, as told by Standard & Poor's. The Irish Government will be in a fix to choose between repaying senior bondholders or handling the huge budget deficit.

Anglo Irish's senior bonds insured by default swaps climbed up 24.5 basis points to 960.5. The Markit iTraxx Financial Index associated to the senior borrowing of 25 banks and insurers mounted up 2 basis points to 148. The Markit iTraxx Crossover Index of credit-default swaps on 50 European Companies rose 10.3 basis points to 526.2.

Greg Venizelos, a Credit Strategist at BNP Paribas SA in London said, "The cost of the Anglo Irish bailout is too high for Ireland to afford without jeopardizing its fiscal position".

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