Tags: Netherlands | Credit | Risk | Deficit

Netherlands Leads Rise in Sovereign Credit Risk on Deficit Woes

Monday, 23 April 2012 12:40 PM

The Netherlands led an increase in the cost of insuring against default on European sovereign debt to the highest in four weeks after lawmakers split over austerity plans to lower the nation’s budget deficit.

Credit-default swaps on Dutch bonds jumped 9.5 basis points to 128.5 at 11:55 a.m. in London, according to data compiled by Bloomberg. Corporate credit risk also rose as reports showed manufacturing contracted in the euro area and China.

Dutch Prime Minister Mark Rutte may call early elections to win support for additional budget cuts as he tries to steer the nation away from the clutches of the region’s debt crisis. His government’s fall could stifle policy making in the 17-member euro region at a time when there are renewed concerns about Europe’s ability to contain the crisis.

“There is a danger that we will see a move to more radical, less Europe-friendly policies in the Netherlands,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “A change in the Dutch government raises concern as to whether they will get the budget through and whether they lose their triple A rating which is causing the widening at the moment.”

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments jumped four basis points to 285. An increase signals worsening perceptions of credit quality.

Manufacturing Output

Euro-area services and manufacturing output declined for a third month in April as the economy struggled to rebound from a fourth-quarter contraction. A euro-area composite index based on a survey of purchasing managers in both industries fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate today. Economists had forecast an increase to 49.3.

China’s manufacturing may shrink for a sixth month in April, maintaining pressure on officials to adopt more policies to stimulate economic growth, a survey of companies showed. The 49.1 preliminary reading of the purchasing managers’ index from HSBC Holdings Plc and Markit Economics today compares with a final 48.3 in March. A number below 50 points to a contraction.

The Markit iTraxx Crossover Index of swaps linked to 50 companies with mostly high-yield credit ratings increased 18 basis points to 690. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings advanced 5.5 basis points to 149 basis points.

The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers rose 6.5 basis points to 259.5 and the subordinated index jumped 10.5 to 420.

A basis point on a credit-default swap protecting 10 million euros ($13.2 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

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Monday, 23 April 2012 12:40 PM
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