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False Default Signal With Swaps Most Since January: Muni Credit

The cost of protecting municipal debt against default is at the highest level since January even as past warning signals from derivative contracts proved unfounded.

Protection on $10 million of securities for 10 years cost as much as $245,000 this week, according to London-based data provider CMA. That’s the most since Jan. 7, three weeks after banking analyst Meredith Whitney predicted “hundreds of billions of dollars” of defaults in the coming year. Instead, failures plunged to $1.1 billion, a quarter of 2010’s rate, according to Bank of America Merrill Lynch.