The international financial crisis was also reflected by the bond markets. Confidence in corporate solvency has been badly affected. Prices for five-year credit default swaps (CDSs) for debt issued by banks reached several hundred basis points. Europe’s CDS index, the iTraxx Europe, which is made up of the CDS prices of 125 major European companies across all sectors, also increased significantly. It was at 118 basis points on September 30, which was more than twice as high as at the beginning of the year. The end of October saw it reach its peak of 171 basis points for the year to date, after it had briefly climbed to over 150 basis points in March due to the crisis on financial markets. RWE’s credit standing is considered to be well above average on the market. Five-year CDSs used to hedge RWE’s credit risk cost 34 basis points at the beginning of January and 59 at the end of September. Although the financial crisis came to a head in October, spreads have not climbed to the high of over 90 basis points seen in March.

Development of RWE’s five-year credit default swap (CDS) compared with the CDS index iTraxx Europe (line chart)


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