The cost of buying protection against company defaults rose on Wednesday after a sharp decline in China’s benchmark stock index overnight triggered fears of a return to the volatility of February and March.
Shanghai’s Composite Index fell 6.5 per cent, its second-biggest fall in a decade, after the Chinese government tripled a share-trading tax.
The benchmark iTraxx Crossover index of mostly junk-rated companies opened 3bp wider at 194.5bp before settling at 193bp by mid-morning.
The iTraxx Europe index of 125 investment-grade names widened 0.5bp to 20.875bp, which meant the cost of buying protection on this index rose to €20,875 annually for every €10m of debt over five years.
Among single names, Franco-Spanish tobacco company Altadis saw the cost of insuring its debt fall for the second straight day. CDS on Altadis tightened 6bp to 69bp.
The premium on credit default swaps for Portugal Telecom rose 3bp to 38bp on reports it was considering a bid for Brazil’s biggest fixed-line telephone company Telemar, a trader said. “But at sub-40 for Portel we’re still seeing very tight spreads,” the trader added.
Cable & Wireless traded 8bp wider at 158bp, a retracement of previous sessions’ tightening. “There’s a big buyer out there interested in C&W,” a trader said.