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Credit-Default Swaps Unchanged on the Last Trading Day of 2010
The cost of protecting bonds from default in the U.S. was unchanged on the last trading day of the year.
“There might be some year-end reshuffling here and there to clean things up, but there’s not a lot of activity,” Adam Richmond, a credit strategist at Morgan Stanley in New York, said in a telephone interview.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, held at a mid-price of 85.1 basis points as of 12:02 p.m. in New York, according to index administrator Markit Group Ltd.
The index, which typically rises as investor confidence deteriorates and falls as it improves, has declined from 99.4 basis points on Nov. 30. Yesterday’s notional volume on the current CDX series was 70.3 percent less than the average over the last 28 days, Markit data show.
Credit-default swaps on bond insurer MBIA Inc. fell for a third day after a court development raised prospects it may resume guaranteeing city and state debt.
Contracts protecting against the company’s default for five years fell 1.4 percentage points to 14 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $1.4 million initially and $500,000 annually to protect $10 million of MBIA’s debt.
The company has held off insuring municipal bonds because of a 2009 lawsuit by Bank of America Corp., JPMorgan Chase & Co., Barclays Plc and 15 of the world’s largest financial companies challenging MBIA’s decision to separate its municipal bond insurance business from its structured-finance guarantees. Royal Bank of Canada, JPMorgan, Barclays are withdrawing from the litigation.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net
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