New York: The cost to protect against defaults on corporate bonds in the United States and Europe rose after China ordered banks to increase reserves to cool the economy, sparking investor concern that the global recovery may slow.

Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, increased 1.25 basis point to 99 basis points, according to CMA DataVision.

The index typically rises as investor confidence deteriorates and falls as it improves.

The gauge snapped three straight days of declines amid investor concern that diminished stimulus in China may derail the global economic recovery, said Brian Yelvington, head of fixed-income strategy at Knight Libertas, Connecticut.

Credit markets were also roiled by a lack of resolution involving Greece's budget deficit, he said.

"It's a dual concern there," Yelvington said. If Chinese officials "slow their stimulus, it removes a significant force behind global demand."

The Markit iTraxx Crossover Index of credit-default swaps on 50 European companies climbed 20 basis points to 496 basis points, according to CMA. Swaps on Greek sovereign debt were unchanged at 150 basis points and those on Spain increased 2.5 basis points to 140 basis points.

The Markit iTraxx Europe Index of credit-default swaps on 125 companies with investment-grade ratings increased three basis points to 90.25.

Europe's recovery from economic recession is slowing with a report Friday showing Germany's gross domestic product was unchanged in the fourth quarter.

In China, the bank reserve requirement will increase 50 basis points, or 0.5 percentage point, effective February 25, the People's Bank of China said. The current level is 16 per cent for big institutions and 14 per cent for smaller ones.

"Chinese tightening continues to weigh on global growth expectations," Tim Backshall, chief strategist at Credit Derivatives Research in California, wrote in a research note.

Chinese policymakers aim to avert asset bubbles and restrain inflation after banks extended 19 per cent of this year's 7.5 trillion yuan (Dh4 trillion) lending target in January and property prices climbed the most in 21 months.

Bubblenomics

"That's a lot of stimulus coming out of the global economy," Yelvington said. "There's obviously some bubblenomics."

In the US corporate bond market, the extra yield investors demand to own investment-grade debt instead of Treasuries widened three basis points this week to 191 basis points, the biggest spread this year and the widest since December 29, according to Bank of America Merrill Lynch's US Corporate Master index as of February 11.