Credit Default Risk Soaring In Europe

angela merkel

Photo: AP

Credit default spreads are soaring after Germany’s threat to ban naked short selling and restrict CDS transactions.Bloomberg:

The Markit iTraxx Crossover index of swaps on 50 European companies jumped 37 basis points to 569, according to Markit Group Ltd. The index typically rises as investor confidence deteriorates.

Merkel’s coalition stopped traders buying default protection on government bonds they don’t own, so-called naked swaps, as German lawmakers prepare to debate a bill authorizing a $1 trillion bailout to backstop the euro. The unexpected ban, done independently of the European Union, came after the rescue package failed to stop the 16-nation common currency from weakening to a four-year low and as banks became increasingly reluctant to lend to one another.

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