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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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From: redfrecknj	7/18/2007 9:29:44 PM
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Credit-default swaps based on $10 million of MBIA's bonds more than doubled in the past month to $114,000, while Ambac contracts tripled to $91,000, according to CMA Datavision in London. Those levels imply a credit rating of Ba2 for MBIA and Ba1 for Ambac, the two highest junk ratings, according to the credit-strategy group at Moody's Investors Service. Armonk, New York-based MBIA and Ambac guarantee the repayment of bonds issued by cities and states to finance the building of schools and roads. They also insure bonds backed by consumer loans and other financial assets, including collateralized debt obligations or CDOs. Prices of CDOs backed by subprime-mortgage bonds have nosedived as defaults to the least creditworthy borrowers surged in 2007. Five-year credit-default swaps based on $10 million of Aaa rated MBIA Insurance bonds were quoted at $72,000, according to CMA, and Ambac contracts traded at $57,000. Current credit default swap levels on the bond insurance companies imply a credit rating of Baa3 for both, the lowest investment-grade rating, according to Moody's. bloomberg.com

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