By Mark Brown
LONDON – The cost of insuring the sovereign debt of Ireland and Portugal continued to drop Friday, after central banks bought both countries’ bonds Thursday to steady euro-zone sovereign debt markets.
Ireland’s five-year sovereign credit default swaps fell 10 basis points to 540 basis points, while those for Portugal dropped eight basis points to 440 basis points in early trading, according to Markit.
Spanish, Belgian, and Italian CDS prices were broadly unchanged.
Irish and Portuguese CDS prices fell 20 and 32 basis points respectively Thursday, as the yield premium investors demand to hold Irish and Portuguese bonds over bunds narrowed dramatically in response to central banks stepping up their bond purchases.
CDS are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.
A fall of one basis point in the cost of five-year CDS equates to a $1,000 fall in the annual cost of protecting $10 million of debt for five years.
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