Sept. 9 (Bloomberg) -- Asia-Pacific default-protection costs rose on concern that management changes at Lehman Brothers Holdings and Washington Mutual Inc. add to the risk the U.S. government will have to bail out more financial companies.
Australia’s benchmark rose the most in eight weeks, erasing half the decline posted yesterday after the U.S. government seized control of mortgage finance companies Fannie Mae and Freddie Mac. Lehman Brothers Holdings Inc. shuffled its top ranks for the third time in four months and Washington Mutual, the biggest U.S. savings and loan, ousted its chief executive officer yesterday and agreed to more federal supervision.
“Lehman has really dragged us out again and stopped the rally,” said Jared Barton-Hills, a credit trader at Australia & New Zealand Banking Group Ltd. in Sydney. “It is the fear of the unknown that is driving the name and credit markets wider.”
The rescue of Fannie and Freddie is the latest major bailout by the U.S. government since the Federal Reserve offered as much as $30 billion to help finance JPMorgan’s takeover of Bear Stearns Cos. in March. Lehman may have to write down $4 billion on residential and commercial loans and leveraged loans when it reports third-quarter results on Sept. 18, according to Oppenheimer & Co. analyst Meredith Whitney.
The Markit iTraxx Australia index climbed 11 basis points to 152.5 as of 11:12 a.m. in Sydney, Citigroup Inc. prices show. The benchmark, which is tied to the debt of 25 companies, including Qantas Airways Ltd. and BHP Billiton Ltd., climbs as perceptions of credit quality deteriorate.
‘Plenty of Problems’
“There are still plenty of problems out there,” said Mark McCarthy, a credit trader at ABN Amro Holding NV in Sydney. Interview comments: “It’s amazing that people are taking this stuff with Fannie, Freddie and Bear Stearns as a positive. They bail someone out, things get worse, and they have to bail someone else out.”
Fannie and Freddie’s rescue triggered what may be the biggest credit event in the decade-long history of credit-default swaps.
The International Swaps and Derivatives Association, an industry body that publishes standards and guidelines, will set rules by which parties to credit-default swap trades can demand payment on the net amount covered by the contracts, according to a statement yesterday.
‘Scared of Ramifications’
“The only reason the government would pay hundreds of billions of dollars to save Fannie and Freddie is because they’re scared of ramifications of not saving them,” said Tony Adams, who helps manage the equivalent of $36 billion of fixed interest and cash at Colonial First State Global Asset Management Ltd.
Japan’s Markit iTraxx benchmark advanced 5 to 135, according to Morgan Stanley. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, including Thailand and Hong Kong’s Hutchison Whampoa Ltd., rose 8 to 161, ICAP Plc prices show.
Credit-default swaps on Lehman, once the biggest U.S. underwriter of mortgage-backed securities, rose 2.5 basis points yesterday to 327.5 in New York, the most in a week, according to prices from CMA Datavision.
The indexes are benchmarks for protecting bonds against default and traders use them to speculate on or hedge against changes in credit quality. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
Credit-default swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a company used as the reference in a contract fails to adhere to its debt agreements.
The government seizure of Fannie Mae and Freddie Mac triggered what may be the biggest settlement of credit-default swaps in the market’s decade-long history.
The International Swaps and Derivatives Association will set rules by which parties to credit-default swap trades can demand payment on the net amount covered by the contracts, according to a statement today. According to an ISDA memo yesterday obtained by Bloomberg News, 13 Wall Street firms agreed unanimously that the government takeover of the biggest U.S. mortgage-finance companies qualified as a so-called credit event on contracts covering more than $1.4 trillion in Fannie and Freddie debt.
Credit-default swaps on Fannie and Freddie debt have been among the most actively traded individual contracts the past few months, according to reports from broker GFI Group Inc. Dealers don’t disclose the amount outstanding.
Fannie and Freddie also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets.
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Sept. 9 (Bloomberg) -- Asia-Pacific default-protection costs rose on concern that management changes at Lehman Brothers Holdings and Washington Mutual Inc. add to the risk the U.S. government will have to bail out more financial companies.
Australia’s benchmark rose the most in eight weeks, erasing half the decline posted yesterday after the U.S. government seized control of mortgage finance companies Fannie Mae and Freddie Mac. Lehman Brothers Holdings Inc. shuffled its top ranks for the third time in four months and Washington Mutual, the biggest U.S. savings and loan, ousted its chief executive officer yesterday and agreed to more federal supervision.
“Lehman has really dragged us out again and stopped the rally,” said Jared Barton-Hills, a credit trader at Australia & New Zealand Banking Group Ltd. in Sydney. “It is the fear of the unknown that is driving the name and credit markets wider.”
The rescue of Fannie and Freddie is the latest major bailout by the U.S. government since the Federal Reserve offered as much as $30 billion to help finance JPMorgan’s takeover of Bear Stearns Cos. in March. Lehman may have to write down $4 billion on residential and commercial loans and leveraged loans when it reports third-quarter results on Sept. 18, according to Oppenheimer & Co. analyst Meredith Whitney.
The Markit iTraxx Australia index climbed 11 basis points to 152.5 as of 11:12 a.m. in Sydney, Citigroup Inc. prices show. The benchmark, which is tied to the debt of 25 companies, including Qantas Airways Ltd. and BHP Billiton Ltd., climbs as perceptions of credit quality deteriorate.
‘Plenty of Problems’
“There are still plenty of problems out there,” said Mark McCarthy, a credit trader at ABN Amro Holding NV in Sydney. Interview comments: “It’s amazing that people are taking this stuff with Fannie, Freddie and Bear Stearns as a positive. They bail someone out, things get worse, and they have to bail someone else out.”
Fannie and Freddie’s rescue triggered what may be the biggest credit event in the decade-long history of credit-default swaps.
The International Swaps and Derivatives Association, an industry body that publishes standards and guidelines, will set rules by which parties to credit-default swap trades can demand payment on the net amount covered by the contracts, according to a statement yesterday.
‘Scared of Ramifications’
“The only reason the government would pay hundreds of billions of dollars to save Fannie and Freddie is because they’re scared of ramifications of not saving them,” said Tony Adams, who helps manage the equivalent of $36 billion of fixed interest and cash at Colonial First State Global Asset Management Ltd.
Japan’s Markit iTraxx benchmark advanced 5 to 135, according to Morgan Stanley. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan, including Thailand and Hong Kong’s Hutchison Whampoa Ltd., rose 8 to 161, ICAP Plc prices show.
Credit-default swaps on Lehman, once the biggest U.S. underwriter of mortgage-backed securities, rose 2.5 basis points yesterday to 327.5 in New York, the most in a week, according to prices from CMA Datavision.
The indexes are benchmarks for protecting bonds against default and traders use them to speculate on or hedge against changes in credit quality. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt from default.
Credit-default swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a company used as the reference in a contract fails to adhere to its debt agreements.
The government seizure of Fannie Mae and Freddie Mac triggered what may be the biggest settlement of credit-default swaps in the market’s decade-long history.
The International Swaps and Derivatives Association will set rules by which parties to credit-default swap trades can demand payment on the net amount covered by the contracts, according to a statement today. According to an ISDA memo yesterday obtained by Bloomberg News, 13 Wall Street firms agreed unanimously that the government takeover of the biggest U.S. mortgage-finance companies qualified as a so-called credit event on contracts covering more than $1.4 trillion in Fannie and Freddie debt.
Credit-default swaps on Fannie and Freddie debt have been among the most actively traded individual contracts the past few months, according to reports from broker GFI Group Inc. Dealers don’t disclose the amount outstanding.
Fannie and Freddie also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets.
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