By Sarah McDonald April 28 (Bloomberg) -- The cost of protecting Asian bonds from default surged to the highest in almost two months after Standard & Poor’s downgraded Greece’s credit rating to junk. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan jumped 9 basis points to 109.5 basis points as of 11:57 a.m. in Singapore, its highest since March 1, according to Deutsche Bank AG and CMA DataVision in New York. “Markets hate uncertainty and the Greek situation has brought uncertainty back in full force,” said Jason Watts, head of credit trading at National Australia Bank Ltd. in Sydney. “The sovereign risk spreading through Europe is having a global impact and Asia-Pacific benchmarks are paying the price.” Credit swaps on Greece and Portugal rose to a record 824.5 basis points and 383 basis points, according to CMA prices in New York, after S&P lowered its rating on Greece by three steps to BB+ from BBB+ yesterday and warned investors may recover as little as 30 percent of their initial outlay if the country restructures its debt. The shift came minutes after the rating company reduced Portugal by two steps to A- from A+ amid a worsening European debt crisis. The downgrades “provided all the fuel an increasingly skittish market needed to drive a sharp selloff,” National Australia Bank credit analysts led by Michael Bush wrote in a research note today. Thai Risk The Markit iTraxx Australia index rose 9 basis points to 97 as of 1:40 p.m. in Sydney, the highest since Feb. 25, according to Nomura Holdings Inc. and CMA. The Markit iTraxx Japan index jumped 8.5 basis points to 106.5 as of 12:42 p.m. in Tokyo, according to Morgan Stanley. That’s the biggest jump since Feb. 5 and puts the index on track for its highest close since April 1, according to CMA. In Thailand, anti-government protesters vowed to rally support for their cause after blocking a Bangkok commuter train, while authorities promised to “toughen measures” to prevent disruptions. The cost of protecting Thai sovereign debt from default rose 7 basis points to close at 141.9 basis points in New York, the highest since May 15, CMA prices show. Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of credit quality and a drop shows improvement. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails meet its debt agreements. A basis point is 0.01 percentage point. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

Source