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Monolines On the Move

26 June 2014 by HCM

If the market as a whole has been well behaved over the last quarter even taking into account the brief spell of aggressive tightening which followed the ECB meeting at the beginning of June, there are still some pockets of volatility, some due to sovereign wobbles. Argentina experienced some fierce moves after the US Supreme Court rejected their demand to overturn a ruling that may force them to pay billions of dollars to holders of repudiated bonds. Yesterday, Puerto Rico pushed through a legislation enabling the restructuring of the debt of some public corporations. Part of the thesis of investors who were bullish Puerto Rico up to this point has been that the latter have a strong willingness to pay their debt. It is not that obvious any longer in the light of yesterday’s legislation. On the back on that, all the monolines which are heavily exposed to Puerto Rican debt took a beating. MBIA (MBIA Inc), AGO (Assured Guaranty Ltd.) and FSA (Assured Guaranty Municipal Hldg Inc) all saw their risk premia dramatically increase.