Insuring euro debt leaps to record highs

THE cost of insuring Spanish, Portuguese and Belgian debt is at or close to record highs, with Ireland’s bailout crisis spilling into the bond markets of other peripheral Eurozone countries.

Ten-year credit default swaps (CDS) on Spanish government debt are at record highs, reaching 312 basis points (bps) yesterday. That means that it costs €312,000 to insure €10m worth of long-term Spanish debt.

Meanwhile, Portuguese CDS spreads are at peaks last seen on 11 November, when German chancellor Angela Merkel declared that private bondholders should accept haircuts on their investments if a country defaults. Ten-year CDS reached 431bps yesterday.

Irish CDS spreads also widened 16 points to 595bps, while Belgian CDS hit a record, doubling in price to 302bps.

The spread between the yield on peripheral Eurozone sovereign bonds and German bunds also reached a record for some countries yesterday.

The Irish-German spread rose to an all-time high of 734bps, while the Portuguese-German spread hit 430bps, 30bps short of its record high.

The movements show that despite repeated attempts to reassure markets, Eurozone leaders have failed to prevent the investor flight from countries in financial difficulties.

Capital Economics’ Ben May said: “With worries about the political situation and the banks unlikely to ease any time soon, Ireland could effectively be locked out of the bond markets for a prolonged period.”

● The cost of borrowing for Portugal, Belgium and Ireland has soared to record highs in recent weeks.

● The spread between Irish bond yields and German bond yields is at a record high of 734bps.