By Sarah McDonald Jan. 19 (Bloomberg) -- The cost of protecting Japanese sovereign bonds from default climbed to a nine-month high amid concern that Japan Airlines Corp. may file for bankruptcy as soon as today. Five-year credit-default swap contracts on Japan’s sovereign debt increased to 81 basis points yesterday, according to prices from CMA DataVision in New York. That’s doubled since Sept. 17 and is the highest since April 3, the data show. The contracts cost 79 basis points today, according to prices at Australia & New Zealand Banking Group Ltd. “There are some specific issues in Japan, the latest being JAL moving into bankruptcy -- how that might impact on government, and what it signals about the economy generally,” Peter Jolly, head of market research at National Australia Bank Ltd., said in a phone interview from Sydney. A state-affiliated fund will make a final decision on a proposed restructuring for JAL today after the airline sought help following a 131 billion yen ($1.4 billion) first-half loss. The plan will probably include the Tokyo-based carrier seeking court protection, according to three people familiar with the matter. Japan’s credit-default swaps also jumped “in sympathy” with other sovereigns on concern about Greece’s budget shortfall, Jolly said. Greek Deficit Greece may have to step up its efforts to tackle a national fiscal crisis that threatens to spread to other countries across the region, European finance chiefs said yesterday after meeting to discuss the nation’s budget plan. Greece has 254 billion euros ($366 billion) of debt outstanding, and Moody’s Investors Service said Jan. 13 that it may face a “slow death” as it dedicates a higher proportion of wealth to paying off debt. “Sovereign risk is front and center, and that’s not going to go away,” said Jolly. Spending by Japanese Prime Minister Yukio Hatoyama’s government could push the ratio of Japan’s debt to gross domestic product to 204 percent by 2011, the Organization for Economic Cooperation said in November. Japan has the highest debt burden among the 30 OECD member nations. Japan’s five-year yields traded near the highest level in seven weeks before an auction of 2.4 trillion yen in five-year notes today. Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. An increase suggests deteriorating perceptions of creditworthiness and a drop shows improvement. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A basis point is 0.01 percentage point. To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net.

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