With all of the attention being paid to the Bear Sterns fiasco (NYSE: BSC), we may miss the Bank of England’s Quarterly Bulletin today. However, they will be reporting on a variety of issues and they will comment on the monoline insurance business. “A particular source of uncertainty was banks’ exposures – both direct and indirect – to financial guarantors, and the potential losses associated with further credit rating downgrades to these institutions. Banks have various contractual exposures to financial guarantors (also known as monoline insurers).” We will see how this, in conjunction with the tumult in the financial markets, will effect municipal bond issues.
Monoline bond insurer CIFG Guaranty was downloaded to A1 from AAA by Moody’s last week. This is a devastating blow to the company that insures $95 billion in bonds. $1.5 billion could not help CIFG keep its AAA and still resulted in a four notch downgrade.
Take a look at the 1-week return for the monoline insurers and some select municipal bond exchange traded funds (ETFs).
Ambac Financial (NYSE: ABK) +4.01%
MBIA Inc. (NYSE: MBI) +6.49%
Note: Both equity listings for the main monoline insurance companies are up, but faced a rough end of the week.
Muni bond ETFs:
Nuveen Insured Premium Income II (NYSE: NPX) -2.36%
Nuveen Investment Quality Municipal Fund (NYSE: NQM) -0.37%
Lehman Municipal Bond (AMEX: TFI) -3.92%
Blackrock Long Term Municipal Advantage (NYSE: BTA) -6.63%