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Trench War

07 February 2017 by pdonnat

MBIA Insurance Corporation the US monoline seriously disrupted by the mortgage crisis in 2008 has since engaged in a trench war in order to avoid any default. The monoline managed over time to reduce its liability on a bilateral basis, avoiding a credit event. Is the fort falling down? A question was asked to the ISDA’s credit Determination Committee (DC) on an eventual failure to pay on its obligation on a CLO. The 1 year’s CDS premium doubled over the last week but the 5 years CDS is hardly moving. The market does not believe this will be the final wave to overrun the fort. The company said it fully satisfied payment obligations. The DC has not yet answered the question.
Meanwhile, the credit index market failed to be as optimistic as the equity markets. Despite the better performance of European government bonds, the credit indices in Europe traded weak all day long and they are closing at the wide of the day.