The giants of the industry, MBIA and Ambac, live and die by their credit ratings. Even with the sharp stock declines so far this year for both of them, they can fall further if their AAA rating is threatened. The insurers who gorged on sub-prime CDO, are paying the price. In unusually interesting municipal bond article, Bloomberg’s Mysak speculates on what’s next for the big insurance firms:
Insurance now covers about half of the new bonds sold. It saves issuers money. By insuring its bonds, an A-rated issuer can borrow money using an insurance company’s AAA rating. This allows them to borrow money at almost the same rate as those rare issuers naturally rated AAA.
Insurance also makes municipal bonds easier to sell. It’s one thing to describe a municipality and the various revenue streams it is going to use to repay a loan, quite another to say, “This bond is insured by MBIA or Ambac,” so what do you have to worry about?
What everyone is worried about now is just how long the major bond insurers are going to have their AAA ratings.
Posted: November 13th, 2007 under Americas, Fixed Income, General.
Comments: none
Our monthly reports tell you what countries and currencies offer the best deals. Travel and buy smart!