The credit crunch, triggered last February by a surge in defaults on high-risk, sub-prime mortgages, appeared to have travelled right across the financial system yesterday, as it emerged that the cost of insuring even the most robust corporate bonds had reached a record high.

The annual cost of insuring $10 million (£5 million) of bonds issued by a basket of 125 North American investment-grade companies against default, has soared from $80,970 at the start of the year to $152,000, it emerged yesterday.

The basket is known as the Markit CDX North American Investment-Grade Index and includes McDonald's, Wal-Mart and AT&T bonds.

In Europe, the nervousness about bond defaults appears to have increased even further. Since the start of the year, the annual cost of insuring a $10 million investment in the Markit iTraxx index of 125 investment grade European companies rose from €51,320 (£38,670) to €123,750 yesterday. The index includes bonds in Barclays, Diageo and Tesco.

Bond insurance is typically done through Credit Default Swaps (CDS), which guarantee the payment of interest and principal in the event of a default. In return, the insurer receives regular payments from the policyholder.

One banker said that movement in the CDS market did not necessarily signal that the companies' bonds underneath were any more likely to default or run into trouble.

He said the CDS market is much more volatile than the bond market because hedge funds looking to short the market will tend to short the itraax index rather than shorting the underyling bonds themselves.

“It's not always an indication of credit fundamentals. It's more about buy and sell demand,” he said,

Another banker conceded that the CDS market had been “really awful this week”, but said there had been no particular event - such as a downgrading of corporate bonds by a credit ratings agency - to trigger bad news.

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