Abu Dhabi and Qatar led an increase in the cost of insuring government debt in North Africa and the Middle East on concern political upheaval may spread and disrupt oil supply.
Credit-default swaps on Qatar jumped 7 basis points to 113, the highest level in a year, and Abu Dhabi rose 6.5 to 114, CMA prices show.
Oil rose to a two-year high, fueling concern of global inflation, as violence escalated in the region. Muammar Qaddafi’s son called on protesters in Libya to engage in dialogue or face a civil war while in Yemen, demonstrators took to the streets for an 11th day as President Ali Abdullah Saleh said calls for regime change are “not logical.”
“Geopolitical tension is driving sentiment in the market,” said Rajeev Shah, a credit strategist at BNP Paribas SA in London. “Inflation is the key concern on back of the oil spike.”
Libya was downgraded one step to BBB by Fitch Ratings and placed on rating watch negative as security forces attacked anti-government protesters and Saif al Islam Qaddafi said the country faces a civil war in which “rivers of blood will flow.”
“Lack of a political resolution to the conflict and escalating violence would likely result in a further downgrade,” Fitch said in a statement, while noting the country is the only one it rates that has no debt. “This would especially be the case if disruption extended to Libya’s oil production.”
Bahrain’s rankings were reduced at Standard & Poor’s as the island kingdom reels under anti-government protests. Credit- default swaps on Bahrain rose 7.5 basis points to 312.5, the highest since July 2009, according to CMA.
Swaps on Saudi Arabia, used as a measure of confidence in the country which also has no debt, rose 5 basis points to a 19- month high of 145. Swaps on Dubai increased 10 to 447, Lebanon rose 9 to 371, Morocco climbed 8 to 188, Egypt was 3.5 higher at 357.5 and Israel was up 4.5 at 157.5.
The region’s unrest also weighed on corporate credit, with the cost of insuring debt of Eni SpA, the largest foreign oil producer in Libya, up 12 basis points to 90.5.
The Markit iTraxx Crossover Index of swaps on 50 companies with mostly junk credit ratings increased 9 basis points to 391, after earlier falling to the lowest since January 2008, according to JPMorgan Chase & Co.
The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2 basis points to 98.75. The Markit iTraxx Financial Index of 25 banks and insurers increased 3.75 to 166 and the subordinated index was 5 higher at 277.
A basis point on a credit-default swap protecting $10m of debt from default for five years is equivalent to $1,000 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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