Scope Highlights Bank highest level since June, Libor Shows

Derivatives traders are the most affected since June that European leaders do not take into account the currency crisis enveloping the region, causing losses of financial firms.

Contracts to bet on future premiums banks charge each other for dollar loans in London on the federal funds rate almost doubled in November. The so-called FRA / OIS rose to 42.75 basis points, before easing to 39.25 hours, UBS AG data show.

The move shows banks are still wary of lending to each other, and the European Central Bank President Jean-Claude Trichet, intensifying its response to the debt crisis in the region to delay the withdrawal of liquidity emergency system . The ECB said earlier this year that European banks' ability to sell bonds may be hindered by governments try to finance the fiscal deficit accumulated in part to finance a bailout of the banking sector.

"You will inexorably to the relationship between the sovereigns and financials," said Matteo Regesta, interest rate strategist in London at BNP Paribas SA, the world's largest bank by assets. "Financial companies have problems with late payments, fueling the idea that government might need help, it puts pressure on the sovereign, banks are also exposed to."

The gains in the FRA / OIS in recent weeks the sign of the market's expectation that the interbank offered rate in London, or Libor, increase in the coming months, Bank of America Merrill Lynch strategists led by Jeffrey Rosenberg in New York, wrote in a Nov. 30 note to clients.

Relative Performance

European banks pay premiums in exchange forex dollar loans has nearly doubled in the past three weeks, reaching the highest level since May on 30 November. The cost of protecting against losses on their bonds rose to 20 months before cutting the increase yesterday.

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than similar maturity government bond fell 1 basis point from 12-week high of 176 basis points, or 1.76 percentage points , according to Bank of America Global General Merrill Lynch index of corporate market. The average yield of 3.821 percent, the highest since July 27.

Bond New York, American International Group Inc. were the most actively traded U.S. corporate securities by dealers, the day after the insurer sold $ 2 billion of bonds in its bid for the first time since the rescue in 2008, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. 188 Trace operations totaled $ 1 million or more.

AIG bonds rise

AIG $ 500 million 3.65 percent notes due January 2014 rose 0.4 percent to 100.37 cents from 15:42 in New York yesterday, the tracking data show. The bonds were issued on November 30 in an extension 295 basis points.

AIG's $ 1.5 billion of debt of 6.4 percent due December 2020 fell 0.26 cent to 99.478 cents on the dollar, tracking data show. The notes were issued with a relative yield of 362.5 basis points.

PineBridge Investments is the marketing of a collateralized loan obligation addressed to about $ 480 million, the first since the administrator OCE since completed its separation from AIG in March, according to three people familiar with the discussions.

The CLO market is beginning to open with $ 2.6 billion of deals backed by loans widely syndicated completed this year. The market was 91.1 billion U.S. dollars of the issue at its peak in 2007, according to Morgan Stanley data. CLOs are a type of collateralized debt obligation that the high-performance, high-risk loans and slice them into securities of varying risk and return.

Leveraged loans

The Standard & Poor's / LSTA U.S. leveraged loan 100 rose 0.09 percent to 91.7 cents, the first increase since 18 November. Prices in the index, which measures the 100 largest dollar loans first lien leveraged, have fallen 92.72 cents on Nov. 9, the highest since May 3.

leveraged loans and junk bonds are rated below Baa3 by Moody's Investors Service or below BBB-by S & P.

Citigroup Inc. sold $ 1,875,000,000 of bonds to five years as part of the terms for a cash injection from Abu Dhabi Investment Authority in 2007. The transaction is a resale of 6.7 percent junior subordinated debt originally scheduled for March 2042, the Bank of New York, said in a filing with the Securities and Exchange Commission. The notes yield 250 basis points more than Treasuries of similar maturity.

Emerging Markets

In emerging markets, yields fell 18 basis points related to 254 basis points, the biggest drop since May 10, according to JPMorgan Chase & Co. index data.

The FRA / OIS reflects trade in the futures market premium of the three-month U.S. dollar Libor over what investors expect the federal funds rate to the average, the Libor-OIS. The index has risen 23 basis points on Oct. 29 and was at the highest level since November 30 reached 44.25 on June 28, UBS data show.

The spread hit a record 128.25 basis points in November 2008 as the collapse of Lehman Brothers Holdings Inc., made two months before credit markets to seize up.

The Libor-OIS spread, a measure of the reluctance of banks to lend, declined 10.74 points, after rising 11.13 points, November 30.

The cost of insurance against debt default by the European company had an earlier decline after Trichet told a press conference in Frankfurt that the ECB will keep buying government bonds to ease the "acute" market tensions financial.

Risk junk bonds

The Markit iTraxx Crossover index of credit default swaps, the protection of 50 European companies mostly junk rating fell 12 basis points to 492 from 14:33 in London, according to Markit Group Ltd. The Markit iTraxx Financial index of swaps subordinated debt of banks and insurance companies has fallen 16 basis points to 296 after reaching a maximum of 20 months of 311.5 on 30 November, prices of JPMorgan Chase & Co. show.

Swaps credit-default tend to fall as improving investor confidence and rising as it deteriorates. Swaps pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.

European sovereign crisis is also causing an increase in the premiums for the banks in the region to pay back loans in dollars in the swaps market. The price of swaps every two years between exchange between euros and dollars reached at least 50.6 basis points on November 30, the largest effective premium for dollar borrowing in swaps since May. The gap was reduced to less than 45.5 basis points yesterday, has expanded from less than 30.3 basis points on November 22.

Currency swaps

currency swaps two basic years between euros and dollars was extended to as much as a record of at least 92.5 points in October 2008.

Signs of stress are also shown in the market for interest rate swaps. The difference between the exchange rate floating-to fixed-income payments for two years and performance comparable-maturity Treasuries, known as the spread of trade, widened 3.5 basis points to 27.38 basis points after arrive at 30.88 on November 30, the most since July.

Tensions in bank funding markets have not reached levels that shocked the markets in May when EU leaders took steps to curb sovereign debt crisis and rescue Greece, Bank of America analysts wrote. exchange lines created by the Federal Reserve in 2008 and reinstated in May have eased the needs of European banks for funding on the dollar, the analysts wrote.

SEC Regulation

Strains in May also were exacerbated by new SEC rules forcing money market funds in exchange for several of its holdings in shorter maturity debt, causing a decrease in the demand for more debt sold banks.

"The recent increase in the measurement of the pressures of funding pales in comparison to what we saw earlier this year as the first round of plays sovereign crisis," wrote analysts at Bank of America.

"With the gathering pace of financial contagion across countries and sectors, we reiterate our view that it is urgent for the ECB to intervene in the market to send a powerful message to global investors that the central bank stands ready to provide an unlimited line of defense for the euro area, "said Jacques Cailloux, chief European economist at Royal Bank of Scotland in London yesterday in a note to clients.