Markit municipal MCDX trading wider than high grade CDX.NA.IG index for first time

By Jennifer Chiou

New York, Dec. 11 - The Markit MCDX index is trading wider than the Markit CDX.NA.IG index for the first time since Markit MCDX was launched on May 6, 2008, according to a news release.

This means that buying protection on U.S. municipal debt now costs more than buying protection on U.S. investment-grade bonds, Markit said.

Spreads on the Markit MCDX index, which references 50 municipal bond credit default swaps, are currently at around 330 basis points while spreads on the Markit CDX.NA.IG, which references 125 investment-grade bond CDSs, are at around 269 bps.

"The current widening of Markit MCDX spreads reflects the perceived increase in municipal credit risk. A confluence of events - an economy in recession, decreasing home values and increasing unemployment - has combined to reduce municipalities' sources of income," Gavan Nolan, credit analyst at Markit, said in the release.

"Several municipalities have announced recently that they are experiencing financial difficulties. The likes of Michigan and New York City, exposed to the struggling auto and financial sectors respectively, demonstrate the importance of credit risk in the municipal market."

Markit is the owner of the Markit MCDX index and provides independent data, portfolio valuations and over-the-counter derivatives trade processing to the financial markets.

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