LONDON, April 23 (Reuters) - The cost of insuring exposure to a basket of sub-investment grade European companies fell to near one-week lows on Thursday after the European Central Bank said it would buy some junk bonds as part of its stimulus programme.
The ECB said on Wednesday it would let banks post collateral that was downgraded to junk during the coronavirus outbreak to prevent a credit squeeze in the euro zone.
The Markit iTraxx Europe crossover CDS index dropped to 478 bps from Wednesday’s close of 508 bps, according to IHS Markit data. The index closed on Tuesday at 555 bps.
The ECB decision has ramifications for euro zone sovereigns that could possibly see their credit ratings cut to junk in coming months, Marija Vertimane, senior strategist at State Street Global Markets, said, adding:
“The ECB decision makes the potential downgrade of Italian or Spanish credit rating less painful.” (Reporting by Thyagaraju Adinarayan; editing by Sujata Rao)