Bond Insurers Hatch Plan That Could Help ETFs

Bond insurers are working on a plan that could eventually restore the industry’s related exchange traded funds (ETFs)

Ambac Financial Group (ABK) and MBIA Inc. (MBI) area couple of the bond insurers working with them. The companies also may present a proposal next week that would allow the insurers to guarantee some assets with government backing, reports Christine Richard for Bloomberg.

The Treasury’s $700 billion program to buy troubled assets may allow the two guarantors to dispose of bonds backing collateralized debt obligations that they guaranteed. Banks may also be entitled to cancel credit default swap contracts they bought from bond insurers if the banks can sell the underlying CDOs to the government.

The Treasury yesterday said it isn’t considering buying equity holdings in bond insurers.

Bond insurers would take losses on defaults, guaranteeing securities and thus allowing securities to trade at full face value.

• SPDR KBW Insurance ETF (KIE): down 49.7% year-to-date

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