Friday, November 27, 2009

Light Friday

Post-Thanksgiving trading was very light as expected, with the market only open for a half day.

US stocks followed the lead of international shares, with the DJIA off 155points. Markets were spooked by the continued fears over Dubai World's request to suspend interest payments on its massive debt load.

The WSJ reports that holders of this debt have a formed a group to "explore" their options:

"The bonds have plunged in value after the troubled Gulf city-state rattled investors Wednesday by delaying the state-run conglomerate's debt payments. Roughly $3.5 billion of Islamic bonds, called sukuk, dropped to around 40 cents at their lows Friday from around 110 cents before the news Wednesday. The bonds, due to mature Dec. 14, later recovered to about 57 cents Friday"

It will be interesting to see how this plays out. Many people expected Dubai's neighbor Abu Dhabi to come to the rescue, but not it's appearing more likely that they will (at the very least) allow bondholders to suffer before throwing more good money after bad.

In "graphic form," here's an example of the fear in debt markets over everything Dubai-related. The cost to insure debt of DP World, for instance, has exploded this week. (Trading at 755basis points, this means that it would cost $755k to insure $10million in debt against default.)

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