Company Bond Risk Falls as Citigroup Wins Government Guarantee

The cost of protecting corporate bonds from default fell around the world after Citigroup Inc. got $306 billion of troubled mortgages and toxic assets guaranteed by the U.S. government, Bloomberg reported today. Credit-default swaps on the Markit iTraxx Crossover index of 50 companies with mostly high-risk, high-yield credit ratings dropped 21 basis points to 892, according to JPMorgan Chase & Co. prices at 11:03 a.m. in London. Contracts on Citigroup fell 9 basis points to 482, CMA Datavision prices show. “The recent government bailout highlights the fact that although banks may be in trouble, the banking system will be rescued,” Philip Gisdakis, a Munich-based credit strategist at UniCredit SpA, wrote in a note to investors. Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality; a decline signals the opposite. Contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings declined 8 basis points to 175, JPMorgan prices show. The Markit CDX North America Investment Grade Index of 125 companies in the U.S. and Canada dropped 20 basis points to 265.5 on Nov. 21 in New York, according to Barclays Capital. Read more.