Spreading European Fiscal Crisis Hurts Banks: Credit Markets

Signs the global economic recovery is faltering and Europe’s fiscal crisis is spreading added to investor concern that banks will have difficulty in clawing back the $2.4 trillion they’re owed by that region’s most indebted nations.

The cost of insuring against a default on financial-company bonds surged, with the Markit iTraxx Financial Index of credit- default swaps linked to the senior debt of 25 European banks and insurers climbing 6 basis points to 189, according to CMA DataVision in London, near the highest level since March 2009. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments fell 1.5 basis points to 167, compared with the record-high 174.4 reached on June 4.

Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance maturing bonds and fund deficits, according to Bank of America Corp. data. A U.S. jobs report at the end of last week fell short of economists’ forecasts, while a spokesman for Hungary’s prime minister said it was “no exaggeration” to suggest the eastern European nation may default.

“The market is so volatile right now, it’s ready to blow up on any headline no matter how meaningful it should be,” said Aziz Sunderji, a credit strategist at Barclays Capital in London. “People are extremely risk-averse.”

Read More: – By John Glover, Bloomberg