The cost of insuring the junior debt of Royal Bank of Scotland has hit an all-time high as credit market investors have become increasingly nervous about the funding of major Western banks

Credit default swaps on RBS subordinated debt yesterday closed at a new high of 662 basis points, meaning that to buy protection against the possibility of the state-backed lender missing an interest payment would cost £662,000 a year on a £10m holding of the bonds.
The previous high in RBS CDS was in February 2009 when it reached 649 basis points at the height of the financial crisis that only months before had forced the British government to take an 83pc stake in the bank as it stood on the brink of collapse.
The rise in the perceived risk of RBS has been dramatic and only a month ago the cost of insuring the lender’s junior debt against default stood at 385 basis points.
CDS quoted on the subordinated debt of other several other major UK banks is currently running at 12-month highs, with Barclays at 445 basis points, HSBC at 192.81 basis points, and even Standard Chartered, which had been relatively immune to the fears, at 243 basis points.
“The CDS is essentially an insurance contract used by investors for hedging, so it tends to be much more volatile than the actual interest cost a bank pays on its debt,” said Jon Peace, the London-based head of European banks research at Nomura.