LONDON (Dow Jones)–The cost of insuring European sovereign and corporate debt against default was lower in early trading Friday, ahead of the keenly watched U.S. nonfarm payrolls as well as other European economic data.
At around 0745 GMT, the SovX Western Europe index, which investors can use to buy or sell credit default swaps on a basket of 15 sovereign borrowers, was at 371/377 basis points, one basis points tighter from Thursday’s close, according to data-provider Markit.
Credit default swaps are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.
The iTraxx Europe index, which comprises 125 high-grade borrowers, 25 of which are banks and insurers, was two basis points tighter at 176/177 basis points. The Crossover index of 40 mostly sub-investment-grade European corporate borrowers was six basis points tighter at 750/754 basis points.
U.S. nonfarm payrolls is the main focus Friday, and are forecast to have increased by 150,000 in December, following a 120,000 increase in November.
Investors will also be keeping a watch on euro-zone retail sales, which are forecast to have declined 0.4% in November, leaving them down 0.9% on the year earlier. German factory orders are expected to have fallen 1.8% in November, following a 5.2% increase in October.
However, the tone could change as investors remain jittery about the euro-zone debt crisis, and broader contagion. Greece’s prime minister has warned that the country could face a disorderly default if the terms of its second international bailout package aren’t agreed and Hungary saw its issuance Thursday of 1-year bills yield 9.96%.
“Hungary may not be of economic size to be a contagion concern for the rest of Europe but it’s certainly not helping sentiment,” said analysts at Evolution Securities.
-By Sarka Halas, Dow Jones Newswires; +44 (0) 207 842 9236; Sarka.Halasova@dowjones.com
Pelias' views 