The cost of protecting Asia-Pacific bonds from default rose after Treasury Secretary Timothy Geithner warned it will "take time" for the U.S. government's bank rescue packages to bear fruit,
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The Markit iTraxx Australia index of credit-default swaps climbed 10 basis points to 330 at 12:02 p.m. in Sydney, Citigroup Inc. data show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan increased 10 basis points to 355 at 9:14 a.m. in Singapore, according to Barclays Capital. Japan's markets are closed today for a holiday.
"The Save-the-Banks campaign that was earlier bought on the rumor was sold - enthusiastically - on the news last night," said Brett Williams, BNP Paribas SA's Hong Kong-based head of Asia credit research. "Safe haven trade is back on the boil."
Geithner yesterday pledged government financing for as much as $2 trillion to spur new lending and address banks' toxic assets, seeking to end the credit crunch hobbling the economy. North American credit-default swaps rose as Geithner left investors seeking more details on the plans, the main components of which are the Treasury's package for a joint public- and private-sector fund to buy as much as $1 trillion of illiquid assets and $1 trillion of credit to consumers and businesses.
The government also will inject additional taxpayer funds into banks, imposing tighter restrictions that will include limits on dividend payments, acquisitions and executive pay.
Commonwealth Bank
Contracts on the senior debt of Commonwealth Bank of Australia, the nation's second-biggest lender, were quoted unchanged at 135 basis points, according to Citigroup. The Sydney-based lender said today net income rose 9 percent to A$2.57 billion ($1.68 billion) in the six months to Dec. 31 while bad debts rose almost five-fold to A$1.6 billion.
Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada climbed 8.5 basis points to 196 yesterday, according to Barclays. Contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 1.5 basis points to 144.5, JPMorgan Chase & Co. data show.
Swaps on Citigroup, the New York-based bank that received $45 billion in government aid and last month announced plans to split itself into two companies, rose 26 basis points to 288, according to CMA DataVision.
Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on changes in credit quality. The swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements.
A basis point, or 0.01 percentage point, is worth $1,000 on a swap protecting $10 million of debt.