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Credit default swaps for France, Italy hit record highs

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Insurance against credit defaults by France and Italy reached record high levels on Monday as investors worried about the difficulty faced by countries across the Eurozone to absorb the ongoing debt crisis.   

In afternoon trade, credit default swaps (CDS) for France were at 180 basis points meaning that it costs $180,000 (127,400 euros) to insure $10 million invested in French five-year debt bonds.

Consequently, CDS rates for major French banks increased sharply but without reaching the record high set on August 11 amid rumours that Societe Generale faced dire liquidity problems.

On Monday, the CDS rate was 235 basis points for BNP Paribas, 238 points for Credit Agricole and 320 points for Societe Generale.

The CDS rate for Italy reached a record high 417 basis points on doubts that Rome will carry through austerity measures announced by the government last month and which have yet to be implemented.

CDS rates rose for all eurozone countries on Monday, with investors worried about the ability of the second debt rescue for Greece agreed in July to stop contagion and end the debt crisis.

Francois Perol, the head of the French banking federation told Les Echos newspaper that the markets were “overvaluing fear factors”.

In a report released on Monday, Morgan Stanley Research said investor sentiment towards France was tilting towards negative.

“The escalation of the sovereign debt crisis in the eurozone has affected the French financial sector in particular, given its exposure to peripheral sovereign debt,” the report said.

Morgan Stanley said that French government bonds “have also been affected  by the spillover, although the impact appears limited — at least for now.”

Paris, Sept 5, 2011 (AFP)