Fannie & Freddie default swaps triggered!
Well, I wasn’t expecting this one.
The U.S. government’s takeover of mortgage finance companies Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) will trigger one of the largest ever payments in the credit default swap market, analysts said on Monday.
Losses made by protection sellers, however, may be minimal due to the high trading levels of the agency debt underlying the contracts…
Terms in the credit default swaps contracts specify that the contracts are triggered by the intervention, meaning that protection sellers must pay buyers the full amount insured.
It is the first time a company in the benchmark investment-grade credit derivative index has had a credit event, JPMorgan analyst Eric Beinstein said in a report on Monday.
“This will likely be the largest credit default swap credit event in terms of the amount of credit default swap contracts outstanding that has occurred,” he said.
Fannie, Freddie default swaps triggered by bailout (Reuters)
