The cost of insuring exposure to sovereign as well as corporate debt rose almost across the board on Friday as the spread of coronavirus raised the prospect of debt distress and government bailouts.

Default insurance costs for Japan’s sovereign debt rose to their highest in 23 months, with five-year credit default swaps (CDS) at 27 basis points, according to data from IHS Markit. The CDS stood at 16 bps as recently as Feb. 21.

With coronavirus infections nearing 100,000 worldwide, travel bans and factory shutdowns and other restraints have fueled worries of a global economic recession.

That would come at a time when debt levels at companies as well as governments are at record highs — thanks to years of rock-bottom interest rates.

China, where the epidemic originated, saw sovereign CDS climb 7 bps to 51 bps, matching an August 2019 high, while in Italy, whose already fragile economy has been hit hard by the virus, CDS rose to 166 bps, also the highest since the end of August.

Other emerging markets were also hit. South Africa’s CDS rose 12 bps and Turkey’s 23 bps.

“EM economies will be hit on multiple axes,” said Jon Harrison, emerging markets macro strategist at TS Lombard. “Risk aversion and home bias among investors are likely to strengthen the dollar further, while the collapse of travel and economic activity will drive a renewed decline in global trade.”

Bank-Ruptcies

The slowdown, the prospect of even lower interest rates and a potential build-up in toxic company loans hit European banks hard.

An index of bank shares fell almost 4% on Friday to the lowest since 2009. The index of bank shares is down 25% since February — well into bear market territory.

Italian banks in particular saw debt insurance costs surge — it is the European nation worst struck by the virus with the death toll at 148.

Its sovereign bonds have come under selling pressure in recent weeks, the selloff then rippling on to the banks which are the biggest holders of these securities. CDS for lender UniCredit jumped 10 bps to 122 bps, while Intesa Sanpaolo also had a 10 bps rise to 123 bps.

But demand is rising for protection against other European bank exposure too — five-year CDS on French banks Credit Agricole , Societe Generale and BNP Paribas all rose 4 to 5 basis points – the latter hitting an 11-month high.

Deutsche Bank CDS rose 6 bps to 78 bps, its highest level in five months.

But some cautioned against drawing parallels with the euro zone debt crisis.

“The situation of the European banking sector is completely different from what it was in 2009,” Jerome Legras, head of research at Axiom Alternative Investments, said.

“I’m not more worried about their solvency than I was three weeks ago,” he said, though profitability was a worry, he added.